US Dollar Index bulls approach 109.30 hurdle on hawkish Fed signals ahead of US NFP

• US Dollar Index holds onto Fed Chair Powell inspired upside momentum near one-week high.
• Fed’s Powell defends rate hikes, sounds tough on further monetary policy tightening despite recession woes.
• Doubts over central bankers ability to tame inflation and avoid recession join US-China tussles to also favor DXY bulls.
• Second-tier data, Fedspeak can entertain traders ahead of Friday’s US jobs report for August.

US Dollar Index (DXY) remains firmer around 109.20, after rallying the previous day, as traders begin the week comprising the US Nonfarm Payrolls (NFP) amid mixed signals. Even so, hawkish Fed and recession woes seem to keep the buyers hopeful amid a sluggish Asian session.

That said, the greenback gauge versus the six major currencies marked a notable run-up on Friday after Fed Chairman Jerome Powell said, “Restoring price stability will take some time, require using central bank's tools 'forcefully',” during his much-awaited Jackson Hole speech. The policymaker also stated that restoring price stability will likely require maintaining a restrictive policy stance for 'some time'.

Following him was Cleveland Federal Reserve Bank President Loretta Mester who stated that she would base her decision on whether to back a third straight 75-basis point interest rate hike next month on US inflation data, not the closely-watched jobs report.

It’s worth noting that not only the policymakers from the US Federal Reserve (Fed) but from the European Central Bank (ECB) were also hawkish and hence underpinned the US dollar’s safe-haven demand, especially when the markets fear a recession. In this regard, US Senator Elizabeth Warren said on Sunday, per Reuters, that she was very worried that the Federal Reserve was going to tip the US economy into recession.

On the same line was a study presented at the Jackson Hole Symposium stating that the central banks will fail to control inflation and could even push price growth higher unless governments start playing their part with more prudent budget policies. "If the monetary tightening is not supported by the expectation of appropriate fiscal adjustments, the deterioration of fiscal imbalances leads to even higher inflationary pressure," said Francesco Bianchi of Johns Hopkins University and Leonardo Melosi of the Chicago Fed.

Furthermore, escalating geopolitical tensions between the US and China also add strength to the DXY. China's military said on Sunday, per Reuters, that it was monitoring US Navy vessels sailing through the Taiwan Strait, maintaining a high alert and ready to defeat any provocations.

Talking about the data, US Core Personal Consumption Expenditures (PCE) Price Index, mostly known as the Fed’s preferred inflation gauge, edged lower to 4.6% in July from 4.8% prior and 4.7% market forecasts. Further, the University of Michigan Consumers Confidence Index was revised upwards in August, with the final print arriving at 58.2, versus the preliminary reading of 55.1 and 55.2 expected.

Against this backdrop, Wall Street benchmarks dropped more than 3.0% each while the US 10-year Treasury yields printed mild gains to end the week around 3.04%. The S&P 500 Futures track Wall Street as it drops more than 1.0% by the press time.

Moving on, Fedspeak and the US PMIs may entertain DXY watchers before Friday’s US jobs report for August. Should the employment numbers arrive as firmer, the greenback gauge could extend the latest run-up towards refreshing the multi-year high.

Technical analysis

Friday’s clear rebound from 108.60 joins bullish MACD signals to hint at the DXY’s another attempt in breaking the 109.30 hurdle. However, overbought RSI conditions raise doubts about the greenback gauge’s further upside.