Where we are: The DXY is currently trading at 99.06, up 0.13% on the day, having carved out a 98.89-99.06 range so far. This pushes it above Friday’s close, driven by a moderate bid as EU cash markets progress. Focus remains squarely on the US data flow and whether it will prompt a rethink on the Fed’s timeline.
What’s driving it: The Fed’s patient hold remains the primary driver, with any sustained dollar strength conditional on continued disinflation and a cooling labor market. Firm payrolls or a re-acceleration in services inflation would likely push back expectations of rate cuts, fueling further USD upside. The market is also mindful of the possibility of a Fed rate hike before year-end, especially if inflation remains sticky.
- Powell’s remarks, warning against politicizing the Fed, underscore the central bank’s commitment to its data-dependent approach.
- The 2s10s spread sits at 0.47%, a modest steepening of 1.0bp, suggesting a slight easing of recession fears but not enough to meaningfully alter the Fed’s calculus.
- CFTC data show speculators are holding a crowded net long USD position, at the 81st percentile, indicating squeeze risk on any dovish surprise.
NY session focus: The ISM Manufacturing PMI and ISM Manufacturing Prices, both released at 10:00 ET, will be closely watched for signals on inflation and economic activity. US 10Y yields, currently at 4.452%, will likely dictate the pace of any dollar move. If the data beat expectations, look for a push towards 99.25 in the DXY. At 20:30 ET, FOMC Member Powell speaks, providing a further opportunity for market participants to gauge the Fed’s thinking. The pain trade here is a soft ISM print that triggers a short squeeze in crowded USD longs.