The US Dollar (USD) twitched nervously yesterday as President Trump referred to CEA head Hassett as the 'potential' Fed chair. This morning sees the USD broadly lower and the US yield curve a little steeper as markets mull the strengthening prospect of a Hassett-led Fed, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

DXY pressured as yield advantage continues to shrink

"Spot moves are not all that significant on the face of it; the Scandies and the pound lead gains on the session, rising between 0.5-0.6% but the DXY is pinned back to recent lows and looks prone to more losses. The DXY’s weighted yield spread over its major currency peers has been steadily shrinking in recent months while the index itself has rallied since September. The narrowing yield advantage adds to building bearish pressure on the USD."

"Asian and European stocks are mixed while US equity futures are higher on the session. Risk sentiment has steadied since the late November volatility in tech stocks but underlying worries persist. Oracle Corp’s credit default swaps continue to widen, reaching a little beyond the previous peak seen in 2022 (implying a cumulative 5Y probability of default of a little over 10%)."

"On the charts, DXY losses have dumped the index back to the 99.0 support zone. This is the neckline trigger for a double top pattern that developed through November at 100.4. A break lower targets a drop to 97.6."