Dollar Retraces from 15-Week Peak, Markets Await US CPI and PCE
The US dollar index (DXY) weakened by around 0.2% on Monday (March 9th) after briefly touching a 15-week peak near 99.70 earlier in the session. The DXY opened with a gap up, but selling brought the index back to the 99.00 area by the close, leaving a "long upper wick" that signals rejection at a high level after a sharp six-week rally.
The dollar has been a major beneficiary of the Strait of Hormuz crisis, with markets viewing the US as relatively insulated from supply shocks due to its energy independence. At the same time, expectations for an interest rate cut have been significantly reduced: the market is now pricing in only one 25-bps cut this year—expected in September—down from two before the conflict. The Fed currently holds rates at 3.50%–3.75%, and the January FOMC minutes showed some officials discussed the possibility of a rate hike if inflation remains above target.
The next focus is on US inflation data. February's CPI is scheduled for release on Wednesday, with consensus readings of 0.3% (m/m) and 2.4% (y/y). The energy price shock from the Hormuz shutdown in the final days of February is unlikely to be fully reflected, but an upward surprise remains a risk of reinforcing hawkish repricing. On Friday, the market faces a busy data slate: January's core PCE is expected to come in at 0.4% (m/m) and 3.0% (y/y), the preliminary estimate of fourth-quarter GDP is projected at 1.4% (annualized), and the University of Michigan's March consumer sentiment index is expected to fall to 55 from 56.6.
Source: Newsmaker.id
