DXY inter-markets: (too) fast and (too) furious?

The US Dollar Index (DXY) – which tracks the buck vs. a basket of its main rivals – continues its correction lower today after reaching fresh tops in levels last seen over a decade ago in the mid-101.00s on Friday.

The needle-like up move, which has extended from November’s low in the vicinity of 94.00 the figure to the already mentioned 13-year peak at 101.50 now seems to have entered a pause mode, as investors continue to cash up part of those strong gains while a potential Fed’s rate hike next month seems to be already priced in.

According to CME Group’s FedWatch tool, the probability of higher rates in December is above 95%, while USD speculative net longs have dropped to 4-week lows during the week ended on November 15, coinciding with some deceleration of the bull run.

Yields in US money markets remain firm in the shorter end of the curve, while the red colour prevails in the belly and the longer end. In spite of the correction, the 10-year benchmark remains in yearly tops well above the 2.0% mark, adding to USD strength as of late.

While the correction in USD remains under way, further gains should come mainly from monetary policy divergences between the Federal Reserve and the rest of the central banks, while the likeliness of looser fiscal policy during the Trump’s administration bodes well for prospects of higher consumer prices and hence faster hikes in the future.

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