US Dollar Index clinches to gains near 98.30, FOMC eyed

  • DXY moves within a tight range around 98.30.
  • US 10-year yields drop to the 1.80% area.
  • Housing Starts, Building Permits, FOMC next on the docket.

The Greenback is alternating gains with losses amidst a narrow range around the 98.30 region when tracked by the US Dollar Index (DXY) on Wednesday.

US Dollar Index looks to the Fed

The index navigates a tight range after the choppy start of the week, although it manages well to keep the trade above the key 98.00 the figure for the time being.

DXY lost ground on Tuesday after the Fed pumped in more than $53 billion of cash into the banking system following the first repo operation in over a decade. Another repo operation is also expected today for around $75 billion.

In the US docket, the housing sector will be in the limelight in the first turn with the publication of Housing Starts and Building Permits. Later, the Federal Reserve is widely anticipated to reduce the FFTR by 25 bps. Attention will also be on Chief Powell’s press conference and revised projections for growth and inflation.

What to look for around USD

DXY regained poise at the beginning of the week and managed to retake the 98.00 mark and above. Today, the Fed is expected to extend its ‘mid-cycle adjustment’ and reduce the FFTR by another 25 bps, all under the pledge to ‘sustain the ongoing expansion’. Markets, however, appear somewhat overconfident in the fact that the Federal Reserve will embark on a sustained reduction of interest rates, leaving the door wide open for a probable disappointment at this week’s event. Looking at the broader picture, the positive view on the Dollar is well underpinned by the solid US labour market, strong consumer confidence and spending and the auspicious pick up in consumer prices, all adding to the buck’s safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is gaining 0.08% at 98.29 and faces immediate contention at 97.86 (monthly low Sep.13) followed by 97.59 (100-day SMA) and finally 97.17 (low Aug.23). On the upside, a break above 99.10 (high Sep.12) would aim for 99.37 (2019 high Sep.3) and then 99.89 (monthly high May 11 2017).

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