US Dollar Index recedes from tops near 97.00

The greenback navigates within a tight range and amidst thin trading conditions in the 96.70 region when tracked by the US Dollar Index (DXY).

US Dollar Index in fresh cycle highs just below 97.00

The index clinched new 2021 highs in levels just shy of 97.00 the figure on Wednesday, just to come under some mild downside pressure so far on Thursday.

In the meantime, elevated inflation continues to dominate the scenery and took centre stage among the FOMC members, as noted by the publication of the Minutes of the November 2-3 meeting on Wednesday.

Indeed, many members now seem inclined to accelerate the pace of the tapering process, at the time when a lift-off in interest rates has been brought forward. On the latter, market participants now pencil in three 25 bps interest rate hikes during the next year, likely at the June, September and December events.

In addition, auspicious results from the US docket also prop up the ongoing upside momentum in the dollar coupled with the move higher in US yields across the curve.

What to look for around USD

The index clinched new cycle tops in the vicinity of 97.00 earlier in the week. The intense move higher in the buck remains well underpinned by the “higher-for-longer” narrative around current elevated inflation, which in turn lend wings to US yields and bolsters speculations of a sooner-than-estimated move on interest rates by the Federal Reserve. Further support for the dollar comes in the form of the solid recovery in the labour market, Biden’s infrastructure bill and positive results in US fundamentals.

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Debt ceiling issue. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is retreating 0.17% at 96.67 and a break above 96.93 (2021 high Nov.24) would open the door to 97.00 (round level) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.51 (low Nov.18) followed by 94.96 (weekly low Nov.15) and finally 94.56 (monthly high Oct.12).