The US dollar continued to rise on Thursday, with the index up about 60 bps to 98.45, extending Wednesday’s gains. It also pushed above the relative strength index resistance around 51, signaling that bullish momentum is building and a trend reversal is underway.The US dollar could very well climb to around 100, where it would test the summer highs. That will be the point at which we learn whether this move is genuine or just another fake-out.Also helping to push the US dollar higher are rising rates, with the 10-year climbing nearly 3 bps on Thursday to finish at 4.17%. The PCE report today could play a role in whether this momentum continues. Core PCE is expected to rise by 0.2% m/m and 2.9% y/y. I asked ChatGPT to estimate the outcome based on CPI, PPI, and import prices, and it suggested core could come in between 0.2%–0.25% m/m and 2.9% y/y.Meanwhile, Grok sees core PCE at 0.3% m/m and 3% y/y. It seems like a fun experiment to compare.Regardless of PCE, the 10-year rate is likely to rebound further because the curve simply remains too flat, with the 3-month Treasury at 3.99%. A move back to 4.3% on the 10-year, based purely on technicals, looks like a reasonable near-term target.Higher rates and a stronger US dollar should make US dollar funding costs more expensive as interest rate differentials narrow. This will add to the existing headwinds for liquidity, which is already tightening due to falling reserve balances and higher overnight repo rates.One useful gauge of these conditions is the USD/JPY 5-year cross-currency basis swap, which tracks shifts in dollar funding. At the moment, there hasn’t been a change in trend, but it’s hard to imagine conditions staying this easy for much longer.Speaking of overnight repo rates, the average rate on Thursday was 4.21%, which is near the upper end of the Fed Funds target range of 4.00% to 4.25%. With quarter-end approaching, reserve balances draining, and Treasury settlements ahead, it’s possible that institutions may tap the Standing Repo Facility before September 30Speaking of reserve balances, those fell to $3.0 trillion as of 9/24, down from $3.02 trillion last week. Reserves should continue to move lower into quarter-end on September 30, with the extent of the decline depending on how much activity the Reverse Repo Facility absorbs between now and then.None of this is good for risk assets. The S&P 500 gapped below the 10-day exponential moving average, and the longer it stays below that level — and the further it moves away — the greater the likelihood that we are witnessing a significant market top that could persist, especially if liquidity conditions continue to tighten.Original Post