US Dollar (USD) is mixed near this week’s highs. The run of Goldilocks-type US economic data continues to offer USD support. Consumer spending activity is holding up well. The policy-relevant retail sales control group matched consensus at 0.4% m/m in November and October growth was revised down -0.2pts to 0.6%. In parallel, the January Fed Beige Book highlighted that outlooks for future economic activity 'were mildly optimistic' with most districts 'expecting slight to modest growth in coming months', BBH FX analysts report.

DXY struggles above 100 amid easing inflation

"Still, we doubt the Dollar Index (DXY) will sustain a break above 100.00 in part because easing inflation pressures leave plenty of room for the Fed to deliver additional rate cuts. Trade Services PPI dropped to a 15-month low at 1.0% y/y vs. 1.3% in October, suggesting businesses are absorbing costs rather than passing them on to consumers. Indeed, the January Fed Beige Book noted that 'firms expect some moderation in price growth'."

"Fed funds futures price little chance of a cut at the next three FOMC meetings (January 28, March 18, and April 29). The next full 25bps cut isn’t priced until the June 17 meeting, while a total of 50bps of cuts remains fully priced by year-end. For reference, the FOMC median rate forecast implies just one 25bps cut in 2026."

"Political pressure targeting the Fed is a structural drag for USD. Yesterday, Poland said it was closely watching for any market fallout from the US Department of Justice investigation into the Fed ahead of planned US dollar debt issuances later this year. Immediate market effects are negligible, but the signal is powerful and feeds into the gradual erosion of the dollar’s reserve-currency dominance. Policy predictability is key factor a country monitors when choosing a borrowing currency."