US Dollar bears jumping the gun towards a run to 104.50s DXY – by fx_ross DollarIndex Currencies Fed Bonds
US Dollar bears head toward the mid-range of the 104 area that guards a slide into the 103s and 101s.The US Dollar is falling to test a 16-week low in the DXY, an index that measures the greenback vs. a basket of currencies. The August 11 low was made at 104.64 and today's low reached 104.66 so far. The index has fallen from a high of 105.
Meanwhile, on Thursday, easing inflation supported the Fed chair's indication that rate hikes could slow. Data has shown that in the 12 months through October, the personal consumption expenditures In current trade, Benchmark 10-year yields are down 1.5% to 3.5565 and the more Fed sentiment-sensitive 2-year note yields are down 0.6% to 4.287%. Fed funds futures are pricing that the Fed’s benchmark rate will peak at 4.91% in May, up from 3.83% now.
However, investors who are expecting a full pivot may be putting the cart before the horse. Prior to Powell's speech, St. Louis Federal Reserve President James Bullard warned that the stock market is underpricing the risk of a continually aggressive Fed. Powell’s admission that “the path ahead for inflation remains highly uncertain” leaves prospects on the table for a protracted period of rate hikes. Additionally, the US dollar tends to perform around the sentiment of a US recession.
The bottom line is that “by any standard, inflation remains much too high,” and “it will take substantially more evidence to give comfort that inflation is actually declining,” as per Powell's comments on Wednesday. However, for now, despite such hawkish jaw-boning, and signals that the Fed will keep hiking well into 2023, for now, investors don't mind and that is weighing on the greenback.
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