USD holds firm despite soft November CPI – ING

The US Dollar (USD) is proving surprisingly resilient despite the release of a very soft US November CPI reading yesterday. It may be that the numbers seem too good to be true, which prevented a bigger reaction in FX and interest rate markets. In fact, two-year US Treasury yields ended yesterday’s session unchanged on the day. However, the data leaves the idea of Fed cuts in 2026 intact, with the market now anticipating one 25bp cut by April and another by September, ING’s FX analyst Chris Turner notes.

Fed cuts still priced in for 2026

“Overnight, the US Treasury TIC data for October was released. This is a volatile series and the net purchases of US long-term securities – at $17.5bn – were the lowest since the net $24bn outflow in April. These figures do bounce around a lot, so it is far too early to conclude there are any strong signs of a rotation away from US asset markets. However, one enduring trend is the continuing fall of Treasury holdings amongst the BRICS nations. In October, these were China (-$11.8bn), India (-$12bn) and Brazil (-$5bn).”

“Across the foreign official sector, foreign official holdings of Treasury Bonds and Notes were off $22bn, though partially offset by a $14bn increase in T-bill holdings. We think the decline in India’s holdings probably relates to FX intervention to support the rupee, but suspect there are also geopolitical factors at play too. However, this year has shown that the private sector is more than willing to buy Treasuries and our call for a weaker dollar in 2026 is based on foreign investors increasing their hedge ratios on US assets rather than selling them outright.”

“Yen weakness today is making DXY look bid. Here, USD/JPY may stay bid after the Bank of Japan Governor said the BoJ needed to see the impact of the rate hike before moving again. That could mean another six to 12 months! Short-term resistance for DXY is at 98.75/80.”