Where we are: The DXY currently trades at 99.13, down 0.13% on the day, holding above the session low of 99.11 but well off the overnight high near 99.50. Dollar weakness has been broad-based as the index retreats from recent seven-week highs. US 2 and 10 year yields are slightly lower, reflecting a cautious tone ahead of the US data dump.
What’s driving it: The near-term dollar direction hinges on this morning’s US data deluge, with the Core PCE Price Index at the forefront. The Fed remains firmly in a patient hold, and a hot PCE print would fuel speculation of a policy misstep and further delay rate cut expectations, supporting the Greenback. Fed officials, including Jefferson, have recently reiterated concerns about inflation risks, particularly from energy price surges, reinforcing the data-dependent stance. Firmer crude is likely exacerbating these concerns; WTI is holding above $112/bbl.
- The 10-year Breakeven Inflation rate sits at 2.39%, suggesting inflation expectations remain relatively well-anchored ahead of the PCE print.
- US 2Y yields are trading down to 4.049%, suggesting a slightly dovish tilt ahead of the data.
- Speculator positioning remains modestly short the USD (-479 contracts), leaving room for a potential squeeze if data surprises to the upside.
NY session focus: All eyes are on the 08:30 ET releases: Core PCE Price Index, Prelim GDP, GDP Price Index, and Unemployment Claims. A hotter-than-expected PCE would likely send the DXY towards 99.50 and potentially test the 99.80 resistance level. A weaker print could see a test of 98.80. New Home Sales at 10:00 ET will provide further insight into the housing market’s resilience. The trade at risk is short USD/JPY, as a hawkish repricing could fuel a significant rally. The pain trade is a surprisingly dovish print followed by a recovery in risk sentiment, pushing the DXY towards the lows of the week.