Where we are: The Dollar Index held near Friday’s highs, closing out the week around 119.50. Overnight trading saw some minor retracement, but the broad trend remains supported by elevated US yields. The DXY is currently trading just off its Friday NY close, with key technical support seen at the 119.00 level.
What’s driving it: The Federal Reserve’s hawkish hold last week continues to be the dominant narrative, underpinning the Dollar. Chair Warsh’s statement and the revised dot plot signal a clear bias towards keeping rates higher for longer, with a significant portion of FOMC members projecting at least one hike this year. This stance is reflected in the rising US 2Y and 10Y yields, which are providing a solid floor for the Greenback. While crude oil prices saw a notable decline on Friday, the geopolitical undertones from the cancelled US-Iran talks are providing a subtle counter-balance, keeping a bid under safe-haven assets.
- The Fed’s hawkish hold, with the median dot plot for end-2026 rising to 3.8% and 9 of 18 officials projecting a hike this year.
- US 2Y yields have climbed 15bps to 4.2% and 10Y yields are up 6bps to 4.49% as of Wednesday’s close, reflecting the Fed’s tightening bias.
- Speculative positioning shows a crowded long in USD futures (net non-commercial +1,384 contracts), increasing the risk of a squeeze on any disappointment.
NY session focus: With no major US data releases scheduled before the New York open, attention will remain squarely on the Fed’s forward guidance and the ongoing geopolitical tensions. The VIX, having spiked 12.37% on Wednesday, suggests elevated risk sentiment which could benefit the Dollar. Traders should monitor the 2s10s spread, which narrowed to 27bps, indicating a flatter yield curve that could persist if the Fed maintains its hawkish stance. The pain trade for the Dollar here would be a significant deterioration in US labor market data or a dovish pivot from a Fed official, which could trigger a sharp unwinding of crowded long positions.