DXY inter-markets: waiting for Trump

The US Dollar Index – which measures the buck vs. a basket of its main competitors – stays on the defensive so far this week, now tumbling to fresh lows near 99.40 and opening the door for a potential test of YTD lows around 99.20 (February 3).

Yields in US money markets remain the almost exclusive driver of the buck’s fresh drop today, with the 10-year reference plummeting to sub-2.38% levels, where it seems to have found some support for the time being.

The greenback paid little-to-none attention to recent supportive Fedspeak from FOMC’s Mester, George and Harker, all advocating for (at least) two more rate hikes this year, re-asserting at the same time the solid pace of the US economy, mainly from its labour market. Currently, the probability of a Fed rate hike in May stays at just above 6% and at 46.6% for the month of June, according to CME Group’s FedWatch tool and based on Fed Funds futures prices.

In the meantime, all eyes stay on Trump and the likely timing of his fiscal plans, particularly on infrastructure, as this could be the next trigger for the resumption of the USD upside, as the divergence in policy between the Federal Reserve and its peers appears somewhat relegated as a significant driver for the greenback’s price action.