The US Dollar Index has reclaimed the 102.00 level as strong labour market data bolsters the currency, though analysts warn that sustained gains may require a hawkish surprise in this week's inflation report.
The Dollar Index has rebounded back above 102.00 after a low of 101.10 on 4th November, reversing all post-election losses on stronger US labour market data. MUFG sees the Fed focusing more on upside inflation risks, though contained second-round effects temper the case for faster hikes. Sustained dollar strength may hinge on a hawkish CPI surprise this week.
Stronger labour data argues for further Fed tightening, which would push yields up, but the article notes contained second-round inflation effects are helping to dampen upward pressure on US yields, leaving the net effect balanced.
The US Dollar Index has climbed back above the 102.00 level, fully reversing losses sustained after the 4th November election. MUFG analyst Lee Hardman attributes the rally to robust US labour market data, which has shifted Federal Reserve focus toward upside inflation risks. While the currency currently trades ahead of short-term yield spreads, market participants are now looking to this week's inflation data for further direction.
Stronger US labour market data has lifted the Dollar Index back above 102.00 after post-election losses, shifting the Fed's focus toward upside inflation risks.
The dollar is running ahead of short-term yield spreads, so without a hawkish surprise from this week's inflation data the rally may not be sustained.