The US dollar is having a rough start to the new year, failing to extend last year’s gains. With the Federal Reserve expected to soften its monetary policy tightening campaign and potentially cut interest rates in 2023 in response to a recession, the greenback has weakened. Will weak data add to its downward trend?

On Tuesday, the December National Federation of Independent Business (NFIB) Optimism Index fell to 89.8, down from 91.9 in November. This represented the 12th consecutive month below the 49-year average, caused by worsening business conditions and falling real sales. Inflation continues to be a top problem for companies, although it is showing signs of easing.

The IBD/TIPP Economic Optimism Index tumbled to 42.3 in January, down from 42.9 in December. This is below the two-decade average of 49.6 and has been paralyzed in contraction territory for 17 straight months.

But has this pessimism peaked?

“[I]ndex component declines were relatively minor compared to the wild swings that have become all too normal since the start of the pandemic,” said Ed Carson, IBD’s news editor. “This suggests perhaps the economy – and people’s opinions of it – are beginning to steady.”

Wholesale inventories rose 1% in November, up from 0.5% in October.

On the housing front, real estate demand rebounded as mortgage applications rose 1.2% for the week ending January 6, according to the Mortgage Bankers Association (MBA). The 30-year mortgage rate eased to 6.42%.

All eyes will be on the December inflation report, which is expected to slide below 7%. The core inflation rate, which strips the volatile food and energy sectors, is also anticipated to slip below 5.7%.

The US Treasury market was red across the board, with the benchmark 10-year yield down 6.3 basis points to 3.556%. The one-month bill slipped 0.8 basis points to 4.261%, while the 30-year bond shed 7.7 basis points to 3.679%.

The US Dollar Index (DXY), which measures the buck against a basket of currencies, was relatively unchanged at 103.25. The DXY is down 0.25% so far on the year, but it has plummeted nearly 9% in the last three months.

The USD/CAD currency pair was also flat at 1.3429 at 18:13 GMT on Wednesday. The EUR/USD rose 0.18% to 1.0754, from an opening of 1.0735.