US dollar update

US dollar summary

The US Dollar Index (DXY) has recently reached its highest point since November 2023, trading around 105.45, underpinned by a strong labor market and rising inflation which have tempered expectations for immediate rate cuts by the Federal Reserve. Specific highlights include:

Inflation and Federal Reserve Policy:

  • March’s Producer Price Index (PPI) increased modestly by 0.2% month-over-month and 2.1% year-over-year, slightly below the anticipated figures. This suggests a potential easing in inflationary pressures, although the core PPI, which excludes volatile items such as food and energy, exceeded expectations with a 2.4% increase compared to the predicted 2.3%.
  • Consumer Price Index (CPI) data indicated that prices accelerated for a second consecutive month in March, defying expectations for a slowdown. This robust inflation data has led to reduced market expectations for Federal Reserve rate cuts, with projections now set for only 40 basis points in easing this year, a decrease from the 60 basis points expected earlier.

Labor Market Conditions:

  • The labor market remains robust, with initial jobless claims falling to 211K from the previous 222K, better than the expected 215K. This strength supports the potential for sustained economic growth without necessitating immediate rate cuts.

Treasury Yields and Market Reactions:

  • Treasury yields have generally been rising; specifically, the 10-year yield has reached five-month highs at 4.54%. However, the 2-year yield slightly declined to 4.93%.
  • These shifts in yields reflect broader market sentiments that are responsive to the latest economic data, impacting the valuation of the US Dollar.

Currency Performance and Central Bank Policies:

  • The dollar remains strong overall due to the positive economic indicators and the recalibration of rate-cut expectations.
  • Furthermore, the European Central Bank’s decision to maintain its current interest rate levels while showing readiness to implement cuts if necessary has also influenced market dynamics, particularly in bolstering the dollar’s position.


In summary, the combination of rising inflation, strong labor market data, and shifting yield curves has kept the US Dollar robust, supported by market anticipation of less aggressive rate cuts from the Federal Reserve. The economic landscape, as indicated by PPI, CPI, and jobless claims, suggests a cautiously optimistic outlook for the dollar, reinforced by international monetary policies and bond market trends.


Market Views & Opinions

ING in today’s article “FX Daily: From Fed dependence to Fed divergence” concludes:

“Today, the US calendar includes the import price index for March and April’s University of Michigan surveys (markets normally move on the inflation expectation component). The Fedspeak agenda includes Susan Collins, Jeffrey Schmid, Raphael Bostic and Mary Daly.

Geopolitics has played a seemingly secondary role for FX for a while now, but rising tensions between Iran and Israel can spill into even higher oil prices – all to the benefit of the dollar in the near term. DXY can comfortably eye 106.00 now, but today may be too early for a move to that level.”

CIBC in a recent Economic Flash “US CPI: Another disappointing one for Fed” mentions that:

The big question for the FOMC is what is behind this pickup in inflation to start 2024. Powell seems to be believe residual seasonality is playing a big role and that still seems plausible. But it is now very hard to also discount the risk that firm demand in the economy is keeping service prices elevated with solid consumer spending and a jobs market that just keeps on giving. That will keep the Fed on hold until the dust settles. When will that be? We still expect that to happen in the coming months because broader forces still portend softer service prices due to disinflation in goods and falling housing costs



The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.

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