Hawkish Fed Commentary

The US Dollar is pushing firmly higher today, with bullish sentiment strengthened by hawkish Fed commentary yesterday. Chicago Fed President Goolsbee said yesterday that he sees risks of inflation remaining elevated against a backdrop of heightened supply shock risks and increased spending linked to AI investment. As such he signalled that further tightening would likely be necessary with a further .25% hike this year quite probable. While not a voter in the committee his views are often seen as a gauge of how sentiment sits within the Fed. We also heard from St Lous Fed President Musalem who shared his view that front-loaded gradual tightening is the best course of action for the Fed. Today we’ll hear from Fed’s Williams and Jefferson with USD vulnerable to a continued move higher if we hear any further hawkish sentiment shared.

USD/Oil Link Breaking Down

Hawkish Fed commentary has helped buffer the US Dollar against the decline in oil prices and the rising optimism around a possible end to the US/Iran war. USD had been tracking the moves in oil prices with oil price direction used as a rough proxy for gauging likely Fed action given its impact on inflation expectations.

What to Watch

Looking ahead this week, US PMIs, a raft of Fed speakers and durable goods, UoM data on Friday will be the key inputs to watch. Traders will also be monitoring headlines around the UN meeting in New York as well as Trump’s side-line meetings with Xi and Gulf leaders.

Technical Views

DXY

The rally in DXY has seen the index breaking back above the 100.18 level and back above the broken bull channel lows. While above this area, focus is on a continued push higher, in line with bullish momentum studies readings. If we dip back below the 100.18 level, 99.15 is the key support to watch.