DXY: All eyes on the core PCE report – OCBC

US Dollar (USD) continues to trade near its 2-year highs. Dollar Index (DXY) was last seen at 108.23, OCBC’s FX analysts Christopher Wong notes.

USD continues to trade near its 2-year high

“Daily momentum is mild bullish while RSI rose into overbought conditions. Resistance at 108.50, 109 levels. Support at 107.20, 106.70 (21 DMA). Day ahead watch US data – core PCE, personal income/spending and Uni of Michigan sentiment. Market liquidity is increasingly thinner and fluid pricing can exacerbate FX moves. A softer than expected print may provide a breather for risk proxies and tame USD bulls.”

“But we caution that hotter print could lead to shallower dipsin the USD pullback and USD bulls may extend its run higher. To recap, FOMC guided for a slower pace of rate cut for 2025 and even 2026 (2 cuts each year). The quantum of rate cuts has also been reduced for the cycle. Although markets have earlier anticipated for 2 cuts, the hawkish outcome saw further hawkish re-pricing.”

“Markets are now not fully pricing another cut until July or Sep with only 38bp now priced for whole of 2025. As of writing, markets are only fully pricing in a 25bp cut at June 2025 FOMC. Market pricing can be fluid. If core PCE data (today) comes in softer than expected or NFP (10 Jan) comes in with slower job, then rate cut expectations can adjust again and the USD can weaken from current highs.”