USD Divergence: Why the US Dollar's Weakness May Be More Than Just Fundamentals
The US dollar experienced a red week despite building expectations for a rate hike from the Federal Reserve and even a second hike by the end of the year. This divergence from fundamental factors points to the continued sell-off in USD/JPY as the main driver.
According to data, CPI came in right at 3.4% for headline and 2.4% for core, but inflation expectations in the U of M survey show widespread expectation for prices to continue moving higher.
The European Central Bank (ECB) hiked rates by 25 basis points, yet EUR/USD set up a doji on the weekly chart, further highlighting how the crowded USD/JPY carry trade is likely playing a larger role in DXY dynamics. This suggests that traders should pay attention to the 'something else' going on, rather than just focusing on fundamental factors.