US Dollar Index climbs to session tops near 90.50, looks to data

• DXY reverses the recent weakness and reclaims the 90.50 area.
• US 10-year yields climbed to the vicinity of 1.60% on Thursday.
• US PCE, Trade Balance, Personal Income/Spending next on tap.

The greenback, when measured by the US Dollar Index (DXY), regains composure and reclaims the 90.00 barrier and (well) above at the end of the week.

US Dollar Index up on higher yields, looks to data

The index quickly reversed the drop to fresh 7-week lows in sub-90.00 levels on Thursday on the back of the sharp rebound in US yields, particularly the 10-year Treasury, which advanced to the vicinity of 1.60%, levels last seen in February 2020.

The sharp move in yields motivated investors to cash out recent gains in the risk complex and accelerate inflows into the safe haven USD.

There are no changes in the broader trading scenario, which remains dominated by the progress of the vaccine rollout, bets for a strong economic rebound in H2 2021 (both in the US and the rest of the world) and the recently reinforced ultra-accommodative stance from the Federal Reserve.

Later in the US data sphere, inflation figures tracked by the PCE (the Fed’s preferred gauge) will take centre stage seconded by Personal Income/Spending, advanced Trade Balance results and the final print of the Consumer Sentiment for the month of February.

What to look for around USD

The index manages to retake the 90.00 yardstick and well above following multi-week lows near 89.70 on Thursday. The reversion of the weekly drop came in tandem with the strong bounce of yields to levels last recorded a year ago. While the reflation/vaccine trade continues to keep bullish attempts in the buck contained, bouts of concerns regarding a pick-up in inflation (and inflation expectations) stemming from the expected extra fiscal stimulus could provide some pockets of strength in the dollar for the time being. Against this, occasional upside in the buck should remain short-lived amidst the broad-based bearish outlook for the currency in the medium/longer-term. This, in turn, is propped up by the reinforced mega-accommodative stance from the Fed until “substantial further progress” is seen, persistent chatter of extra fiscal stimulus and prospects of a strong recovery in the global economy, which are all seen underpinning the better sentiment in the risk complex.

Key events in the US this week: PCE figures and the final February U-Mich print are all due on Friday.

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating? Future of the Republican party post-Trump acquittal.

US Dollar Index relevant levels

At the moment, the index is gaining 0.29% at 90.39 and a breakout of 91.05 (weekly high Feb.17) would open the door to 91.32 (100-day SMA) and finally 91.60 (2021 high Feb.5). On the other hand, the next support emerges at 89.68 (weekly low Feb.25) seconded by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018).