US Dollar: Rally durability questioned – DBS

DBS Group Research economist Philip Wee notes that hotter-than-expected US CPI initially lifted the Dollar and US Treasury yields, but both moves faded as markets reassessed Fed tightening risks. He highlights the DXY Index’s failure to hold gains, reversing Fed hike probabilities, and growing concerns over growth, earnings and political uncertainty weighing on US equities and the broader USD rally.

Hot CPI fails to sustain USD gains

"Overall, the USD’s failure to sustain gains following the upside CPI surprise raises questions about the durability of its rally."

"The reversal in Treasury yields and in Fed hike expectations suggests that investors are mindful of growth and earnings risks from further tightening."

"Political uncertainty added to the headwinds."

"With midterms approaching, investors are questioning whether the benign assumption that Republicans would lose the House but retain the Senate is correct."

"Prediction markets now see a growing risk of a Democratic sweep of Congress, raising concerns about tighter regulatory scrutiny, policy gridlock, and the sustainability of elevated equity valuation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)