- The index resumes the downside and flirts with 105.00.
- A 50 bps rate hike in September remains favoured so far.
- Producer Prices, Initial Claims next on tap in the NA session.
The US Dollar Index (DXY), which measures the greenback vs. a basket of its main competitors, leaves behind the initial upbeat note and refocuses on the downside near 105.00.
US Dollar Index weighed down by risk-on trade
The index extends the leg lower for the fourth consecutive session, as investors continue to favour the risk complex on Thursday, particularly following the decline in the US consumer prices during last month.
By the same token, market participants now see a 50 bps rate hike at the Fed’s September gathering as more likely, with CME Group’s FedWatch Tool noting a probability of nearly 60% of such scenario.
Amidst rising appetite for the risk complex, the greenback remains well on the defensive and challenges once again the 105.00 neighbourhood, opening the door at the same time to a potential test of recent lows near 104.60 (August 10).
In the US docket, Producer Prices for the month of July will take centre stage seconded by the usual weekly Initial Claims.
What to look for around USD
The index remains under pressure and returns to the 105.00 zone, as market participants continue to assess the recent publication of US inflation figures.
The dollar, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve.
Looking at the macro scenario, the dollar appears propped up by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.
Key events in the US this week: Initial Claims, Producer Prices (Thursday) – Flash Consumer Sentiment (Friday).
Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.
US Dollar Index relevant levels
Now, the index is losing 0.20% at 104.98 and a breach of 104.63 (monthly low August 10) would expose 103.67 (weekly low June 27) and finally 103.58 (100-day SMA). On the upside, a breakout of 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to marginal gains above 1.0750
EUR/USD trades in positive territory above 1.0750 in the second half of the day on Monday. The US Dollar struggles to find demand as investors reassess the Fed's rate outlook following Friday's disappointing labor market data.
GBP/USD edges higher toward 1.2600 on improving risk mood
Following Friday's volatile action, GBP/USD pushes higher toward 1.2600 on Monday. Soft April jobs report from the US and the modest improvement seen in risk mood make it difficult for the US Dollar to gather strength.
Gold climbs above $2,320 as US yields push lower
Gold trades decisively higher on the day above $2,320 in the American session. Retreating US Treasury bond yields after weaker-than-expected US employment data and escalating geopolitical tensions help XAU/USD stretch higher.
Addressing the crypto investor dilemma: To invest or not? Premium
Bitcoin price trades around $63,000 with no directional bias. The consolidation has pushed crypto investors into a state of uncertainty. Investors can expect a bullish directional bias above $70,000 and a bearish one below $50,000.
Three fundamentals for the week: Two central bank decisions and one sensitive US Premium
The Reserve Bank of Australia is set to strike a more hawkish tone, reversing its dovish shift. Policymakers at the Bank of England may open the door to a rate cut in June.