The US Dollar Index (DXY) corrects lower toward 104.00 after closing the fifth consecutive week in positive territory. Economists at ING analyze Greenback’s outlook.
It seems the Dollar can stay strong for the rest of this month. Seasonal factors support it, but Friday’s release of strong January US PPI data warns that the 29 February release of the core PCE inflation data – the Fed’s preferred reading – could also print a high 0.4% month-on-month and continue to thwart the disinflation trade. That would be our preferred view. We expect investors to start to position again for a softer Dollar in early March ahead of the 12 March release of the February CPI data. We suspect that core inflation will drop back to a 0.2% MoM reading.
On paper, we would expect DXY to hold in the 104.00-105.00 range this week. Technically, however, DXY put in a decent reversal and any surprise strength in the Euro this week could trigger an unexpected break below 104.00.
