The U.S. dollar has been on a strong run for weeks, fuelled by safe-haven flows and uncertainty around the government shutdown.
But that narrative may be turning.
Two major macro signals flipped this week, and if you’ve been waiting for the next USD down-leg, this is the cleanest setup we’ve had in a while.
The Market Is Pricing an Aggressive Fed Ease (Again)
The CME FedWatch Tool now shows an 87% probability of a rate cut in 15 days, the highest easing probability since the government shutdown ended.
That’s a huge shift.
Why it matters:
When the market aggressively prices cuts, the USD typically weakens.
Lower yields mean the USD loses its interest-rate advantage.
Traders begin rotating out of USD longs and into higher-beta FX.
This aligns with the broader theme in recent notes: markets are increasingly sensitive to forward guidance, not just the official rate announcements.
If the Fed hints at more cuts ahead, or even shows concern about the labor market, USD sellers may have their moment.
Today’s U.S. Data Did Not Help the Dollar
Today’s numbers were mixed — but importantly, the parts the Fed cares about softened.
Here’s the breakdown:
Core PPI m/m: 0.1% (forecast 0.2%)
Retail Sales m/m: 0.2% (forecast 0.4%)
CB Consumer Confidence: 88.7 (forecast 93.4)
Pending Home Sales: 1.9% (forecast 0.5%)
We have to remember the Fed has been flying blind due to the shutdown. Now the data has been coming out again and it's showing signs of weakness again.
USDCNH Is Dropping… and That’s a Big USD Bearish Signal
USDCNH hit fresh lows again this week.
Historically:
USDCNH ↓ = USD weakness globally
USDCNH ↑ = broad USD strength
Why? Because China’s currency is the foundation of global dollar liquidity and EM flows. When the yuan strengthens, capital tends to shift into risk-on assets not the dollar.
This correlation is especially strong for AUDUSD, NZDUSD and EURUSD.