A big week for the buck

The dollar finished the week just gone having notched substantial gains, with the DXY index ending Friday around the 103 mark, up roughly 1% since Monday. As we see it, this represents the combination of several USD constructive themes. A hawkish speech from Waller put a 50bp December hike on the table for the Fed, followed shortly after by US CPI, which landed hot. Meanwhile, oil rose on Middle East concerns, with that dynamic, married to ongoing AI jitters, helping prevent dollar haven demand from easing too aggressively. Set against a light calendar of events elsewhere, this mix left the dollar dictating price action, taking EURUSD within striking distance of 1.10, and USDJPY threatening 160 as the week draws to a close. Both are significant levels to watch closely in the coming days.

Indeed, we suspect USDJPY will be key for markets in the week ahead. With Japanese officials resurrecting intervention rhetoric, traders are likely to remain wary of testing 160 – a well-established yen buying trigger. That, in turn, is likely to cap further dollar upside, absent a breakthrough event. Although, admittedly, that could come in the week ahead, with Japanese inflation data due Friday. A CPI release in Canada, Australian employment figures and a raft of UK prints round out the docket for the week ahead. In short, that means a further USD leg higher likely rests on ex-US events, though given our expectations for the data, we see the dollar biased toward further upside near term.

You can read the Week Ahead in full here:

Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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