The dollar rally might be due a pause

Despite a reversal today, the US dollar looks set to appreciate for the sixth week running as “risky” assets remain under pressure. The DXY index has had its largest six-week gain since mid-2016 (while the S&P 500 has had its worst such period since the onset of COVID-19 in early 2020). And, despite Wednesday’s above-expectation US CPI print pointing to strong prices pressures and continued hawkish rhetoric from Fed speakers, government bond yields dropped back sharply this week. In other words, financial markets appear increasingly driven by fear of an economic slowdown.