Where we are: The Dollar Index is currently hovering around 118.10, consolidating after its recent push to one-week highs. The overnight range has been relatively tight, and the DXY is holding above its prior New York close, underpinned by expectations of sustained higher interest rates. Key technical levels to watch include resistance at 118.30 and support around 117.80.
What’s driving it: The dominant driver remains the anticipation of stickier-than-expected US inflation, reinforced by yesterday’s hotter-than-expected PPI print. The market is laser-focused on whether this morning’s Core PPI data, due at 08:30 ET, will confirm this trend. This narrative has seen US 2Y yields climb to 3.95% and 10Y yields to 4.42%, further supporting the Greenback. Recent hawkish interpretations of the Fed’s data-dependent stance continue to bolster the USD, pricing out near-term rate cut bets.
- The 2s10s spread remains at 0.46%, flattening slightly, signalling the market still expects eventual easing despite current hawkishness.
- Rising 10Y real yields, currently at 1.95%, continue to present a headwind for gold, indirectly supporting the Dollar.
- Speculator positioning remains crowded long in USD, at the 83rd percentile, increasing the risk of a squeeze on any dovish surprise.
NY session focus: All eyes are on the 08:30 ET Core PPI print – a beat would likely fuel further USD strength, targeting 118.50, while a miss could trigger a sharp correction toward 117.50. Also of note is the Fed Chair Nomination Vote this afternoon at 14:30 ET. The consensus is for a smooth pass for Kevin Warsh, but any unexpected drama could introduce volatility. The trade that’s working is still fading dips in USD/JPY. The pain trade for the Dollar would be a sharp drop in core inflation, forcing a rapid repricing of Fed expectations.