The US Dollar (USD) is broadly consolidating despite soft sentiment, with the Dollar Index (DXY) heading for a third straight weekly decline and mirroring its 2016–17 trajectory. Upcoming catalysts—including a Supreme Court tariff ruling and the president’s Fed chair selection—could accelerate a bearish break, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

DXY faces third weekly loss

"With little incentive to move prices significantly with Tuesday’s NFP data, the USD is consolidating broadly into the end of the week. The core majors are narrowly mixed against the USD on the day so far, with the NOK, SEK and KRW reflecting the biggest losses while the TWD is the clear intraday outperformer. The CAD and MXN are holding a minor gain on the day (around 0.1%) while the EUR, GBP (despite weaker than-expected UK GDP for Oct) and JPY are 0.1-0.2% lower."

"Broader USD sentiment remains soft and the DXY is poised for a third net weekly loss, the worst run in the index since August. If policymakers are allowing the US economy to 'run hot', a greater risk premium may be attached to the US assets as a consequence. There is also the remarkable oddity of the DXY tracking—still—its 2016/17 experience under the first Trump term very closely. This is not just recent history 'rhyming' with the past, it is repeating the broader trend remarkably closely and it’s hard to ignore."

"If the tracking holds, the DXY is liable to fall quite sharply over the next few weeks. A couple of potential bear triggers are looming—the Supreme Court’s ruling on tariffs could adversely affect USD sentiment, as could the president’s selection of who he wants to lead the Fed after Chair Powell’s term ends. Note that it was reported late yesterday that the Fed’s Board of Governors unanimously reappointed 11 Fed presidents (Bostic will retire in Feb) to new five-year terms, resolving, for now at least, this aspect of uncertainty over the make-up of the FOMC."