USD: USD Down On Bessent Nomination But Relative Macro Momentum Still Positive

The USD is off around 0.50% in terms of the major indices (DXY and BBDXY). This follows the late Friday announcement that Scott Bessent would be nominated for the US Treasury position by incoming President Trump. 

• A more conservative fiscal backdrop, coupled with using tariffs as a negotiating tool and a pro-market mindset, have been associated with Bessent. This is less reflationary at face value and hence the USD is suffering as a result.
• Cross-asset moves have seen a sharp move lower in US Tsy yields, around 4-6bps weaker across the benchmarks. The US equity futures backdrop is also positive, up 0.40-0.50% for Eminis and Nasdaq futures. Such trends are also USD negative.
• Still, it's important to note that the short term macro backdrop has been in favor of the USD. The chart below plots the BBDXY index against the US Citi economic surprise index less the average Citi surprise index for the EU, Japan and China.
• Positive data surprises are strongly in favor of the USD, with the current average at +49ppts, fresh highs back to late 2023. Relative data surprises led the move higher in the USD through Sep/Oct.
• The EU data surprise has turned sharply lower recently, back to -20 per the Citi index.
• A more concerted USD turn lower may require a roll over in US data momentum relative to these other major economies (or a sharp pick up in data momentum outside the US).
• In terms of levels to be mindful of: 20-day EMA support and resistance points are outlined below (based off Friday closing levels).
• BBDXY - 1275 .15 (current level 1285)
• EUR/USD - 1.0678 (current spot 1.0480)
• USD/JPY - 153.52 (current spot 154.00)
• AUD/USD - 0.6559 (current spot 0.6545)
• USD/CNH - 7.2042 (current spot 7.2430) 

Fig 1: BBDXY Index Versus US-EU, Japan & China Citi Surprise Indices