DXY inter-markets: consolidation appears likely

The US Dollar Index – which gauges the buck against a basket of its main rivals – has surrendered earlier gains to fresh 13-year tops beyond the 102.00 handle and is now flirting with daily lows in the 101.65/60 band.

The index stays on track to finish its third session with gains, advancing more than 6% since Donald Trump was elected next US President.

Higher yields in the US money markets – with the 10-year benchmark printing YTD tops above 2.40% - plus prospects of higher inflation on an eventual looser fiscal policy by a Trump’s administration have combined with rising expectations of a Fed’s move by year-end, all propping up the case for a stronger dollar, at least in the near term.

Currently, CME Group’s FedWatch tool places the probability of higher rates by end of 2016 at nearly 94%, adding to the above.

Additionally, auspicious results in US indicators have also been fuelling the rally in the buck. In that line, Atlanta Fed’s GDPNow model forecast sees the real GDP expanding at an annualized 3.6% during the October-December period.

All in all, the bullish bias in USD remains unchanged for the time being, although some consolidation should not be ruled out, as some market participants could surely cash up part of the quick and strong gains seen so far this month, while a rate hike next month is practically priced in already, leaving further room for a potential correction.

To learn more about this topic, check our video analysis: