DXY at 100 - squeeze or new uptrend? - DBS

The Dollar Index (DXY) rebound to late-July's 100 level reflects a confluence of near-term supporting factors - Fed Chair Jerome Powell's pushback on a December rate cut amid tight funding conditions and haven demand as the US government shutdown enters its second month, DBS' Senior FX Strategist Philip Wee notes.

DXY 100 marks an inflexion point

"The greenback's current firmness looks more like a squeeze than a new uptrend. Once the shutdown ends and US data releases resume, attention will likely return to the softening labour market inferred from high-profile corporate layoffs, many of which stem from firms pivoting towards AI solutions."

"US Treasury Secretary Scott Bessent has begun warning of rising recession risks to counter the Fed's caution to lower rates. It bears watching how the Trump administration assesses the current strength of the USD, given its stated goal of achieving a more competitive USD to support its MAGA agenda."

"Trump would interpret Republican victories as validating his high-stakes style. The stakes are also heightened by the Supreme Court's decision on Trump's use of the International Emergency Economic Powers Act (IEEPA) to justify sweeping tariffs - likely before the end of 2025, following today's oral arguments."