Author: Sir Amar

The US Dollar Index (DXY) is flirting with the lowest levels since late June when it hit 104.55 during Friday’s Asian session. With that, the US dollar is justifying the market’s cautious sentiment against the six majors ahead of the previous day’s key US jobs data of 104.70, around 104.50 at the latest given the widespread weakness in US Treasury yields. Optimism on China’s recovery from Covid woes should also favor DXY bears as well as mixed US data. Mainly dovish comments from Federal Reserve (Fed) officials are keeping the DXY bearish.

On Wednesday, the core US consumer spending (PCE) index, the Federal Reserve’s preferred indicator of inflation, was in line with market forecasts of 5.0% year on year but slipped to 0.2% vs 0.3% expected. In addition, the US ISM Manufacturing Purchasing Managers’ Index for November fell to 49.0 vs. 49.7 expected and 50.2 before. On the other hand, the three consecutive days of downward trend in daily Chinese Covid infections from an all-time high allowed policymaker to anticipate the “next “stage” in the fight against the virus, while simultaneously announcing several relaxations of activity control measures.

In addition, the dovish stance of Federal Reserve (Fed) Chair Jerome Powell, as well as initially pessimistic comments by US Treasury Secretary Janet Yellen raised hopes of modest rate hikes. Subsequently, Federal Reserve (Fed) Governor Michelle Bowman stated that it was appropriate to slow rate hikes. Before him, Fed Governor Jerome Powell scoffed at slowing rate hikes, while US Treasury Secretary Yellen also advocated a soft landing. It’s worth noting that recent comments from the New York Fed’s John Williams seem to have put US dollar bears to the test, as policymakers claimed the Fed has a long way to go to hike rates.