New Highs For USD

The US Dollar is on watch today following a breakout to fresh highs for the year on the DXY earlier this session following a strong rally yesterday. The greenback is softening a touch now but focus remains firmly fixed on further upside given the shift in market sentiment this week on the back of hot inflation data and hawkish Fed comments. Monthly CPI topped forecasts for October on both the headline and core readings (no annualised data available due to govt shutdown last year) and December tightening expectations seen jumping consequently.

Hawkish Fed Comments

Hawkish expectations were then further bolstered by a slew of hawkish Fed commentary. Fed’s Waller is getting the most attention for his remarks in support of a more aggressive .5% rate hike on the back of recent data while Fed’s Logan voiced her support for two .25% hikes. This week’s strong inflation data comes on the back of bumper US jobs data last week which saw the headline NFP sharply beating forecasts, wage growth jumping and the unemployment rate falling back. Against this backdrop, USD looks poised to continue higher near-term. Market pricing for a December hike is now sitting above the 90% level. The key thing to watch is whether prices for a larger hike starts to move higher, which should take USD with it if seen.

Technical Views

DXY

The rally has seen prices piercing above the prior 2026 highs around 102.94, stopping just shy of a test of the 103.20 level. While above the 101.91 level, and with momentum studies bullish, focus is on a continuation higher and a breakout towards the 104.70 level next and a test of the bull channel highs.