The US Dollar (USD) remains under pressure as soft labor data and speculation about a more dovish Fed tilt weigh on sentiment, even as OIS markets resist pricing deeper cuts. With the Dollar Index (DXY) breaking below 99.0 and long-end yields steepening on policy-credibility concerns, technical and seasonal forces now point toward further USD downside, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Hassett-Fed speculation steepens yield curve

"The US Dollar (USD) is mixed this morning but retains a softer undertone overall. Weak US employment data are dovetailing with market concerns that a Hassett-led Fed could bring a new, more dovish policy perspective in the coming year. As yet, OIS are loathe to price in faster or deeper cuts and the terminal rate is being held at or around 3% through late 2026."

"But as Hassett’s chances of being nominated (reflected in Polymarket betting peaks) have improved in the past few weeks, the US yield curve has nudged a little steeper which could be a sign of concern about policy credibility in the longer run. That is not helpful for USD sentiment. "

"Net losses for the DXY so far today maintain the break in the index under the 99.0 technical support point, targeting losses to the mid-97 zone. Weekly price action is shaping up to 'confirm' the turn lower in the DXY from a technical point of view. Dollar seasonals are generally—but quite reliably—bearish in December."