- DXY gets a lift from the uptick in two-year T-yield.
- Higher terminal rate to yield sustained rally in the greenback.
The dollar index (DXY) is trading in the sideways manner around 90.30 as investors await the all-important US Fed rate decision.
The greenback moved above 90.00 yesterday, possibly due to a jump in the front end treasury yields. The two-year yield rose 4 basis points to 2.35 percent yesterday. Meanwhile, end-2019 Fed Funds futures rose above 2.5 percent for the first time, suggesting the markets are expecting a higher terminal rate (neutral rate).
Focus on the Fed
A 25 basis point rate hike has been baked-in. So the focus will be on the Fed's wording on inflation and policy tightening. The greenback will likely surge across the board if the Fed revises higher 2019/20 rate forecasts, signaling scope for a higher terminal rate.
Dollar Index Technical Levels
A convincing move above 90.38 (previous week's high) would open doors for 90.93 (February high) and 91.13 (September low). On the downside, breach of support at 89.87 (weekly low) could yield a pullback to 89.41 (March 7 low) and 89.00 (psychological level).
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