U.S. Dollar: Bullish Scenario On-Point, Hawkish Momentum Builds as Inflation and Yields Support Further Strength
2025-05-13 12:53:26
U.S. Dollar: Bullish Scenario On-Point, Hawkish Momentum Builds as Inflation and Yields Support Further Strength
The bullish U.S. dollar scenario we outlined after the May FOMC has materialized — and momentum is accelerating.
- Sticky inflation, rising U.S. 10-year yields, and resilient labor data drive stronger U.S. dollar momentum.
- Upcoming CPI and Retail Sales reports are key catalysts for the next USD move.
- Hawkish Fed stance and tightening yield spreads continue to favor dollar strength across the majors.
Previous Forecast
Forecast Materializing
For reference, checkout my latest blog and video:
https://acy.com/en/market-news/market-analysis/may-2025-fed-press-conference-recap-j-o-183619/
https://www.youtube.com/watch?v=FX7xccXgKjQ&t
https://www.youtube.com/watch?v=2iKxxcnmyLU&t
Sticky inflation, a resilient U.S. labor market, rising Treasury yields, and shifting risk sentiment are now deepening hawkish pressures behind the greenback.
Despite lower volatility in equities, macroeconomic forces continue to firmly anchor USD strength across major currencies.
U.S. Dollar Update: Key Drivers Behind the Hawkish Shift
1. CPI Incoming: Inflation Stickiness Likely to Extend Fed Tightness
Markets are preparing for the U.S. CPI release on Tuesday, May 13.
Updated consensus expectations:
- Core Inflation Rate YoY (Apr): Forecast 2.8% (previous 2.8%)
- Inflation Rate MoM (Apr): Forecast 0.3% (previous -0.1%)
- Core Inflation Rate MoM (Apr): Forecast 0.3% (previous -0.1%)
- Inflation Rate YoY (Apr): Forecast 2.4% (previous 2.4%)
The stabilization — not deceleration — of inflation suggests the Fed has little justification to ease policy soon.
Hot or sticky CPI prints would validate a deeper USD rally and strengthen hawkish market positioning.
2. Unemployment Rate Bumps Higher, But Inflation Takes Priority
The U.S. unemployment rate has recently ticked up to 4.0%.
However, with inflation remaining firm, the Fed will likely prioritize inflation control over reacting to modest labor market softening.
This is a classic stagflation warning: sticky prices + softening employment = higher risk premiums.
Soft jobs + sticky inflation reinforce the dollar’s safe-haven and yield-attraction status.
3. Fed Officials: No Relief in Sight for Dovish Traders
Fed commentary remains sharply unified:
- John Williams (NY Fed): "No urgency to ease."
- Michelle Bowman: "Next move could even be a hike if inflation doesn’t slow."
- Neel Kashkari: "Two cuts this year? Maybe none at all if inflation stalls."
Traders have now priced only two Fed cuts for 2025, down from five cuts earlier in the year.
USD Forecast: Bullish and Bearish Scenarios
🟩 Bullish Scenario
Daily
4-Hour
- Inflation remains sticky ➔ Fed stays hawkish ➔ Yields rise ➔ Dollar strengthens further.
- Look for support opportunities at the volume imbalances or fair value gaps:
- 101.644 - 100.862
- 101.376 - 100.689
- A break of 102.00 level could trigger dollar to rise higher.
Primary path given inflation trends and Fed posture.
🟥 Bearish Scenario
- Break down below of 101.644 - 100.862
- Break of 99.172 for bearish continuation
- Inflation unexpectedly softens ➔ Fed doves resurface ➔ Yields dip ➔ Dollar correction likely.
Lower probability short term.
U.S. Dollar Strength Overview Against Major Forex Pairs
| Currency Pair | Outlook | Notes |
|---|---|---|
| EUR/USD | Bearish | Weighed by Eurozone stagnation, stronger USD. |
| GBP/USD | Neutral to Bearish | Holds support for now but vulnerable if U.S. inflation surprises. |
| USD/JPY | Bullish | Rising yields favor USD over JPY, watch for intervention threats. |
| AUD/USD | Bearish | Weaker China + USD strength undercutting AUD. |
| NZD/USD | Bearish | Dovish central bank, soft commodity outlook. |
| USD/CHF | Bullish Bias | Higher U.S. rates favor USD over CHF. |
What to Look Forward To: Key USD Red Folder Events (May 13–17)
| Date | Event | Forecast | Previous | Impact |
|---|---|---|---|---|
| May 13 | Core Inflation Rate YoY (Apr) | 2.8% | 2.8% | 🔥🔥🔥 |
| May 13 | Inflation Rate MoM (Apr) | 0.3% | -0.1% | 🔥🔥🔥 |
| May 15 | Retail Sales MoM (Apr) | 0.1% | 1.5% | 🔥🔥🔥 |
| May 15 | PPI MoM (Apr) | 0.2% | -0.4% | 🔥🔥🔥 |
| May 16 | Building Permits Prel (Apr) | 1.450M | 1.467M | 🔥🔥 |
| May 16 | Housing Starts (Apr) | 1.36M | 1.324M | 🔥🔥 |
| May 16 | Michigan Consumer Sentiment Prelim (May) | 53 | 52.2 | 🔥🔥🔥 |
CPI and Retail Sales are the critical catalysts for USD direction this week.
Final Thought: Why Fluidity Beats Bias in Trading
The U.S. dollar’s bullish path is playing out — but flexibility remains your real trading edge.
Rigid bias will blind you when conditions shift.
- Adapt when data surprises.
- Adjust when bonds or sentiment evolve.
- Accept when setups invalidate.
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