The US dollar sags as we count down to Fed week | investingLive

Treasury yields are 3-6 basis points higher on the day and that initially gave the US dollar a lift today but it’s fading. The dollar has been under some modest pressure since the softer UMich consumer sentiment data. That’s helped boost the euro to 1.1737 from 1.1712.

There are similar 20-30 pip moves elsewhere and what’s likely flows ahead of the weekend. Notably, the dollar has weakened even as the odds of a larger Fed rate cut have declined. The implied chance of a 50 basis point cut is down to 4.8% and that may be due to the lack of any kind of leak following CPI yesterday. I would warn that we often get a Timiraos Fed preview on the Monday morning before the decision, so keep an eye out for that.

More likely is that the market digested yesterday’s CPI and the quirks in the initial jobless claims numbers and saw a mediocre case for a 50 bps cut.

Zooming out on EUR/USD, this looks like a bullish period of consolidation following the big move from 1.03 to 1.17. The pullbacks have been steady along the way followed by fresh climbs higher. This week underscored why as the ECB cited economic resilience and paused rate cuts. The Fed, meanwhile, appears poised to embark on a long cutting cycle, including 125 bps (priced in) over the coming year.

Add all that up and there is a case to buy a break of the recent highs for a trip to 1.20, which would act like a magnet on any swing higher.