• US Dollar on the backfoot ahead of key data and Fed minutes. 
• The bears have pressured the greenback into bearish territories. 

The US Dollar continues to take its cues from US Treasuries that are pressured in a more hawkish environment. Recent Fed speakers have been advocating for higher for longer. this has encouraged the Fed Funds futures market to start pricing in a 50bp rate hike in March. 

Last week, comments from Loretta Mester and James Bullard (both currently non-voting Fed officials) separately indicated that they saw a case for a 50-bps rate hike earlier this month. However, the Federal Reserve opted for a 25 bps move at the February 1 FOMC meeting.

But with markets expecting the Fed funds rate to peak just under 5.3% by July, the move in the greenback may have run its course and it is sinking at the start of the week.

As measured by the DXY index, it fell in light trade on Monday, losing territory to a low of 103.76. However, it is still up almost 1.8% for the month, on track for its first monthly gain since September. It hit a six-week high of 104.67 on Friday and while below there, the pressures are on. 

There will be crucial events, however, from, the US economic calendar. The Federal Reserve's preferred measure of inflation in the Personal Consumption Expenditure deflator will be key. The market is expecting the January headline data to remain at 5.0% YoY, in line with the previous month, in stark contrast to the presumption that a downtrend in inflationary indicators would continue.

''Data in line with market expectations would thus add further weight to the view that the Fed will have to work harder to push inflation back to its target level,'' analysts at Rabobank explained. ''Currently implied market rates are pointing to a peak in Fed funds close to 5.33%.''

On February 22, the release of the minutes of this meeting will come out and may well indicate if a 50-bps move was seriously considered, and if so, the US Dollar could attract further demand, potentially enough to keep it above 104.50 for the foreseeable future in DXY. 

US Dollar H4 chart

A move lower, in the meantime, would appear to be the bias with the price on the back side of the prior bullish trend. A move to test 103.50 and a break thereof opens the risk to below 102.00.