Powell closes the door on recent dollar weakness

In an otherwise quiet week, the greenback seems set to close higher against most major currencies, reversing much of its decline following the October payrolls data release. We think the dollar’s rise is largely due to the renewed rise in US Treasury yields yesterday, which reflected the relatively hawkish tone in Chair Powell’s comments and, to some extent, rising term premia from the latest Treasury auction. The Fed’s commitment to “higher for longer” was a key driver of the dollar’s rally in Q3 and could keep the greenback on the front foot for some time. We think the strength of macro data out of the US – including next week’s CPI data – will be the key determinant for the dollar: continued resilience would support “higher for longer” in US rates and the dollar, while any signs of softening – as last week’s payrolls report showed – could see the dollar falter amid a “Goldilocks” backdrop.