The US Dollar Index (DXY) remains supported by hawkish Federal Reserve repricing and a risk-off tone in equities, according to ING's Chris Turner. This comes ahead of key US Consumer Price Index (CPI) and Producer Price Index (PPI) data releases, with the Fed currently in a communication blackout before the June FOMC meeting. Turner anticipates limited pushback against tighter pricing and expects the DXY to stay firm, potentially testing resistance around 100.25/65, as cyclical drivers dominate market sentiment [1].
TD Securities economists Oscar Munoz and Eli Nir forecast that May US CPI will show moderating but still-elevated core inflation, with core CPI expected to rise 0.23% month-over-month and 2.8% year-over-year. Headline CPI is projected to climb to 4.2% year-over-year, marking a three-year high. Key drivers include shelter normalization, firmer airfares, and oil-related upside risks. The economists note that the ongoing oil-price shock and lingering tariff passthrough could push the core segment near its peak for the year at 3.0% y/y in June, with upside risks from the Iran conflict. They expect core inflation to remain sticky, with meaningful progress unlikely on a y/y basis in 2026 [2].
ING highlights that the market expects the Fed to remove its implicit easing bias, which is contributing to the dollar's strength. An unwind of risk assets, particularly emerging market positions, is seen as dollar-positive and may add weight to US Treasuries, as emerging market nations and Japan could liquidate Treasuries for FX intervention operations. However, a potential source of dollar selling this week could come from Korea's National Pension Service, which has increased its benchmark 15% hedge ratio on foreign assets [1].
TD Securities sees risks to their inflation forecasts skewed to the upside, especially if the pass-through from jet fuel prices to airfares is larger than anticipated. They expect goods prices to advance at a subdued 0.13% m/m in May, with gains in household goods, apparel, and other goods offset by another decline in used vehicle prices. While normalization is projected in the final quarter of the year, core inflation is expected to remain elevated [2].
CONCLUSION
Both ING and TD Securities highlight persistent inflation pressures and a risk-off market tone as key factors supporting the US Dollar. Elevated CPI expectations and limited Fed communication reinforce the dollar's strength, with potential upside risks from energy prices and geopolitical tensions. The market impact is high, as investors remain focused on upcoming inflation data and central bank policy signals.