Dollar Resilient, Yen Strengthens
The dollar strengthened slightly for a second day, seemingly ignoring market pricing that still projects around three Fed rate cuts this year. The Bloomberg Dollar Spot Index rose 0.1%, while the yen strengthened around 0.4%—but the weakening of other currencies in the index basket kept the dollar in the green.
In the currency market, expectations for interest rate cuts remain quite aggressive: around 64 basis points of easing by year-end. Some strategists consider this pricing to be too preemptive, opening up room for a dollar rebound if subsequent data does not support such a deep cut scenario.
Signals from the options market are also beginning to change: short-term bearish pressure on the dollar is easing, as evidenced by front-end risk reversals that have become the least negative in nearly a month. But on a broader level, caution around the dollar hasn't diminished—global investors are still actively hedging amidst the volatility of early 2026.
With US markets closed on Monday and few catalysts until important data releases, investors have room to "tighten up their positions." Amidst this, market participants say hedge funds appear to be trimming their short dollar positions, taking advantage of the calendar break before the week's major events begin.
On the data front, a stronger US jobs report earlier in the week has further undermined the argument for "insurance cuts" in the near future. Some analysts even see a more selective pattern of cuts—for example, starting in June and continuing into September rather than a scenario of overly stringent cuts.
Geopolitics adds to the uncertainty: a new round of US-Iran nuclear negotiations is back in the spotlight, while Trump also mentioned communicating with Xi Jinping about potential arms sales to Taiwan. This combination keeps the market sensitive to sudden headlines.
The next direction will be largely determined by two key releases: the FOMC Minutes on Wednesday, February 18, 2026, and the PCE data on Friday, February 20, 2026. If the Minutes/PCE indicate that rate cuts are "reduced," the dollar could gain additional strength—but if the signals become increasingly dovish, the USD risks weakening again. (Asd)
Source: Newsmaker.id
