By Zaheer Anwari, Co-Founder and CEO at The Revacy Fund
The dollar continued to trade in a consolidation range on Monday ahead of a dense macroeconomic calendar this week. With US markets closed for Presidents’ Day, liquidity conditions remained thinner than usual today, limiting directional moves.
However, the index could continue to see some downside risks after Friday’s softer-than-expected inflation report reinforced the disinflation narrative and strengthened expectations for additional easing later this year. Forecasts now point to three rate cuts this year instead of two before the inflation data release.
Momentum in the index will see Dollar pairs break through key levels of support and resistance, injecting life into trends.
Treasury yields could follow the same path and could decline if new data strengthens expectations of more interest rate cuts. The 10-year yield slipped to its lowest level in roughly two months, while the 2-year yield declined to multi-month lows on Friday, reflecting growing confidence that policy may become less restrictive.
Looking ahead, attention turns to the latest FOMC minutes and fourth-quarter GDP data later this week. Additionally, markets now look forward to the PCE figures on Friday for confirmation that price pressures are sustainably moderating. Should those indicators validate a broader slowdown in inflation, downward pressure on both yields and the dollar could extend in the sessions ahead.