US Dollar Index hovers around 107.80 as investors await US Durable Goods Orders

The US dollar index (DXY) has corrected marginally to near 107.80 after struggling to cross the critical hurdle of 108.00. The DXY is displaying signs of exhaustion after a bumper rally amid mixed responses from the risk impulse. S&P500 kicked off the already shortened week on a weak note due to the absence of critical triggers. Meanwhile, the returns on US government bonds have rebounded despite dismal confidence in the continuation of the current rate hike pace by the Federal Reserve (Fed).

Yields rebound despite less-hawkish commentary from Fed policymakers

The alpha generated by the US government bonds has been a major victim this month as investors see no continuation of the 75 basis points (bps) rate hike regime by the Federal Reserve (Fed) in its December monetary policy meeting. As per the CME FedWatch tool, the chances of increasing interest rates by 75 bps stand below 20%.

Cleveland Fed Bank President Loretta Mester supported the view that it makes sense to slow down the pace of rate hikes a bit in an interview with CNBC. He further added that “We have had some good news on the inflation front, but need more and sustained good news”. However, he doesn’t see any pause in the rate hike cycle yet.

Also, San Francisco Fed President Mary Daly said on Monday that she is not prepared to say what hike the Fed should do at December Federal Open Market Committee (FOMC) but favored that “it will be right for the Fed to slow its rate hike pace.

Durable Goods Orders- a key event ahead

This week, the US Durable Goods Orders data will remain in the spotlight. As per the projections, the economic data will remain stable at 0.4%. A continuation of improvement in demand for durable goods could add to troubles for Fed chair Jerome Powell as it would continue price growth from manufacturers. A slowdown in durable goods demand will augment a decline in the Consumer Price Index (CPI) numbers.