Where we are: The DXY is currently flat on the day at 97.87, holding its ground near the upper end of its intraday range of 97.80-98.03. This relative stability comes after a modest decline last week, with the index finding support around the 97.80 level. The Dollar remains bid as haven flows persist due to US-Iran tensions.
What’s driving it: The primary driver is the continued geopolitical uncertainty surrounding US-Iran relations; President Trump dismissing Iran’s response to his peace proposal as “TOTALLY UNACCEPTABLE” keeps safe-haven demand for the Dollar elevated. Domestically, the Fed remains on a patient hold, reaffirming its data-dependent stance at the last meeting on March 19th, awaiting further confirmation of disinflation and a cooling labor market. This stance contrasts with the recent US nonfarm payrolls report in April, which significantly exceeded expectations, pushing back market expectations for rate cuts and lending support to the Greenback.
- BofA and Goldman have pushed back Fed rate-cut expectations in response to persistent inflation risks and robust jobs data.
- The US 10-year real yield (TIPS) sits at 1.96%, putting upward pressure on the Dollar.
- CFTC data shows net non-commercial USD positioning at +693 contracts, in the 83rd percentile. This leaves the Dollar vulnerable to a squeeze should data disappoint or risk appetite improve markedly.
NY session focus: With no major US data releases scheduled for today, focus will remain on geopolitical headlines and their impact on risk sentiment. Key level to watch is 98.00; a break above could trigger further upside. Conversely, a move below 97.80 could signal renewed weakness. The working trade remains buying dips on haven demand. The risk trade is a sudden de-escalation of tensions in the Middle East triggering a sharp Dollar selloff. The pain trade for the Dollar is a surprisingly soft CPI print that forces a repricing of Fed rate-cut expectations.