The Dollar is regaining support—shaken earlier by the weaker-than-expected CPI report—following hawkish comments from St. Louis Fed President Alberto Musalem, who addressed the Fed Chair’s main disinflationary thesis.
Musalem’s statement is purely hawkish in nature and directly supports a pause in further US interest rate cuts. According to the St. Louis Fed President, the US economy could accelerate beyond expectations in 2026, and inflation closer to 3% than 2% points to price risks being more persistent than anticipated.
Significantly, Musalem emphasized that the Fed should not base its decisions on expectations regarding US economic productivity. This view stands in direct contradiction to Jerome Powell’s narrative; the Fed Chair sought to build consensus around recent rate cuts precisely on the argument that AI-driven productivity growth would lower costs for firms, thereby reducing price pressure. Musalem also addressed the issue of housing affordability raised by Trump, emphasizing that high home prices are a problem stemming from multiple factors beyond interest rate levels.
The dollar is going back on the offensive, strengthening against all G10 currencies. The Yen, additionally weighed down by domestic politics (USDJPY: +0.7%), and the Franc (USDCHF: +0.5%) are facing the greatest pressure.
Since the start of Musalem’s interview, EURUSD lost around 0.2%, diving below 30-hour EMA (light purple), as wall as key support at 1.16500. Source: xStation5
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