USD trades mixed versus majors – Scotiabank

The US Dollar (USD) is ending the week on a mixed note. But the Dollar Index (DXY) is tracking lower from its intraday high, reflecting a rebound in the EUR from early session lows, and that does leave a bit of a dent in the short-term technical outlook for the index and might point to broader losses developing over the next day or so, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Yields are USD supportive

“The JPY is a relative underperformer on the session, meanwhile. The BoJ’s Tankan survey reflected a small but unexpected improvement in business sentiment in Q4 but the proliferation of reports this week suggesting that BoJ policymakers are in no rush to tighten have slashed expectations for a rate hike next week. Sterling is also a relative underperformer on the day following weak data reports in the UK.”

“ Remarkably, or oddly, the DXY continues to track its performance profile following President-elect Trump’s first win in 2016—with the trend in gains running counter to the usually reliable seasonal softness in the DXY through December. Somewhat firmer US yields perhaps have something to do with that. Expectations for next week’s core PCE data have been measured by yesterday ‘s PPI release, despite the headline overshoot relative to forecasts.”

“Consensus estimates suggest a 2.8% Y/Y gain in core PCE, down a tenth from the forecasts prevailing before the data. Still, some Fed policymakers might be concerned about the broader stall in the disinflation process seen since the middle of the year and US yields are putting in some solid gains on the week, with the 10YY up 18bps or so. That will be somewhat USD supportive at least moving into light trading next week ahead of the holiday.”