US Dollar Index sticks to modest gains amid rebounding US bond yields

The US Dollar Index climbed to a fresh daily top, around the 94.35 region during the early European session, albeit lacking follow-through momentum.

A combination of factors assisted the USD in attracting some buying, on the first day of a new week, and stall its retracement slide from YTD highs touched in reaction to the upbeat US NFP report. As investors looked past last week's dovish FOMC statement, the US Treasury bond yields staged a solid rebound on Monday and underpinned the greenback.

The US central bank announced it would lower its monthly asset purchases by $15 billion, though stuck to its transitory inflation narrative, at the end of November policy meeting last Wednesday. Adding to this, Fed Chair Jerome Powell – in the post-meeting press conference – said that policymakers were in no rush to hike borrowing costs.

Investors, however, seemed convinced that the Fed will have to adopt a more aggressive policy response to contain stubbornly high inflation. This, in turn, triggered a fresh leg up in the US bond yields. Apart from this, safe haven flows due to the cautious market mood were another factor underpinning the greenback.

That said, the uptick lacked bullish conviction as investors preferred to wait on the sidelines ahead of this week's release of the latest consumer inflation figures on Wednesday. In the meantime, US bond yields and the broader market risk sentiment will influence the USD ahead of Fed Chair Jerome Powell's remarks at an online conference.

Technical levels to watch