Where we are: The DXY currently sits at 98.95, down 0.07% on the day, within a 98.89-99.11 range. The index is consolidating losses seen yesterday after the broad index closed at 119.2868 on Friday. The DXY remains below the psychologically important 99.00 level, struggling for sustained momentum.
What’s driving it: Easing Treasury yields are weighing on the Dollar this morning. The Fed remains on a patient hold, as reaffirmed by the March meeting minutes, with cuts conditional on continued disinflation. Further weighing on the dollar are investors scaling back expectations for near-term rate hikes. The market is waiting for PCE inflation data for further clues on the Fed’s future policy direction.
- The US 10Y yield is currently at 4.468%, down 1.1 bps on the day.
- The US 2Y yield is at 4.041%, up 0.4 bps. The 2s10s spread is steepening, now at 0.49%.
- Net non-commercial positioning in the Dollar is modestly short, with -479 contracts. This is the 73rd percentile, reducing squeeze risk.
NY session focus: All eyes will be on any further moves in Treasury yields, watching if the 10Y can hold above 4.44%. Keep an eye on risk sentiment given the S&P futures bid. We will watch for any comments from Fed officials, though none are scheduled today. If yields continue to fall, look for a test of 98.50 on the DXY. The pain trade is a hawkish surprise that sends yields sharply higher, triggering a DXY squeeze towards 99.50.