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[MARKET ANALYSIS] DXY pressured on Fed independence woes, whilst Antipodeans benefit from strength across the metals complex

The DXY is facing downward pressure primarily due to concerns over Federal Reserve independence, highlighted by a criminal investigation into Chair Powell.

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Indian CPI Inflation YY* (Dec) 1.33% vs. Exp. 1.5% (Prev. 0.71%)

Indian CPI Inflation YY (Dec) 1.33% vs. Exp. 1.5% (Prev. 0.71%)

[MARKET ANALYSIS] DXY pressured on Fed independence woes, whilst Antipodeans benefit from strength across the metals complex

[MARKET ANALYSIS] US yield curve steepens on the Fed independence challenge, supply ahead

German Finance Minister Klingbeil says the transatlantic relationship "is disintegrating", Die Zeit reports. Adds, We must further strengthen Europe, and we must do so much faster. The current pace is inadequate. European sovereignty now has top priority"

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  • DXY is under pressure this morning as Fed independence takes the limelight once again. Currently trading at the lower end of a 98.70-99.24 range, and just shy of its 200 DMA at 98.82. Further pressure for the index could see a test of its 100 DMA at 98.62.
  • Downside for the USD this morning can be attributed to Fed independence woes. In brief, Federal prosecutors have opened up a criminal investigation into Fed Chair Powell over the central bank’s renovation of its Washington headquarters. Markets will be left to assess the possible implications of the move; 1) does Chair Powell give in to political pressure, 2) the legislative process/length of investigation, 3) the impact on the broader FOMC board. As it stands, markets appear to be running with the “sell America” theme, with the USD & US equity futures lower and the curve steeper. The USD may also be pressured thanks to the affordability implications of Trump’s demand for credit card rates to be capped at 10%.
  • JPY remains the only currency flat vs the USD, with USD/JPY currently trading within a 157.90 to 158.20 range. The JPY was pressured overnight amidst further reporting of PM Takaichi planning to dissolve the Lower House – as a reminder, this was first reported last Friday which spurred hefty upside in USD/JPY. Since, price action has stabilised with USD/JPY gradually moving back towards overnight troughs as the risk tone remains subdued.
  • Other G10s are stronger against the USD to varying degrees. The Antipodeans are amongst the top performers, benefiting from the strength seen across the metals complex. The CHF appears to be the favoured haven this morning, and currently sits second in the G10 leaderboard.
Context

This fear has created a "sell America" sentiment, leading to a weaker USD against various currencies, particularly benefitting Antipodean currencies amid rising metal prices. As the market weighs potential political implications and impacts on the broader FOMC, watch for volatility in USD pairs, especially if pressure continues on Fed leadership.

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