US Dollar Index fades the uptick to 98.50 ahead of Fed

  • DXY recedes to the 98.40/35 band ahead of FOMC event.
  • US Housing Starts bettered consensus in August.
  • The Fed is forecasted to reduce the FFTR by 25 bps later today.

The US Dollar Index (DXY), which tracks the buck vs. a bundle of its main rivals, remains within the positive territory albeit off daily highs near 98.50.

US Dollar Index bid ahead of FOMC

The index has resumed the upside on Wednesday, leaving behind Tuesday’s moderate pullback and managing to bounce off earlier lows in the 98.20 region.

The Greenback has given away part of its earlier gains in spite of t he positive results from the US housing sector, where Housing Starts increased by 1.364 million units, or 12.3%, and Building Permits rose by 1.419 million units, or 7.7%.

The knee-jerk in DXY comes in tandem with the correction lower in yields of the key US 10-year reference to sub-1.80% levels, around 10 bps lower than recent tops in the 1.90% neighbourhood.

Later in the day, the EIA will publish its weekly report on US crude oil inventories ahead of the critical FOMC event. It is worth recalling that investors have already fully priced in another 25 bps ‘insurance cut’ at today’s meeting.

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 0.15% at 98.36 and 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). On the flip side, the next down barrier aligns at 97.86 (monthly low Sep.13) seconded by 97.59 (100-day SMA) and finally 97.17 (low Aug.23).

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