The dollar index (DXY00) fell by -0.28% on Monday. The dollar settled lower on Monday, consolidating below last Friday’s 2-week high. Comments from US Treasury Secretary Bessent weighed on the dollar Monday when he said the Fed traditionally doesn’t raise interest rates in response to a supply shock, suggesting a possible conflict with Fed Chair Warsh. Monday’s rally in the Chinese yuan to a 3.5-year high also undercut the dollar.
However, losses in the dollar were limited on Monday as WTI crude oil rallied more than +2% to a 1-week high, which raised inflation expectations and could potentially persuade the Fed to raise interest rates, a supportive factor for the dollar. Also, weaker stocks on Monday boosted some liquidity demand for the dollar, and higher T-note yields have strengthened the dollar’s interest rate differentials. Finally, the dollar has some carryover support from last Friday, when Fed Chair Warsh warned inflation isn’t meaningfully slowing and vowed that policymakers will return inflation to their 2% target. The chance of a Fed rate hike at next month’s FOMC meeting rose to 65% on Monday from 36% before Warsh’s speech.
