US Dollar Index: Treasury yields probe post-Fed DXY rally at five-week top

• DXY struggles to extend latest gains after rising the most in three weeks.
• Fed matched market consensus of flagging faster rate hikes but Powell’s cautious optimism probes bulls afterward.
• Fears emanating from Russia, virus woes and Sino-American tensions join hawkish Fed to keep greenback buyers hopeful.
• US Q4 Advance GDP, Durable Goods Orders for December will offer more details for bulls.

US Dollar Index (DXY) seesaws around the monthly high of 96.53, recently easing to 96.50 during Thursday’s Asian session.

The greenback gauge justified hawkish Fed comments as it rose the most since January 03 the previous day. In doing so, the quote crossed a short-term key trend line resistance and refreshed the monthly peak.

The US Federal Reserve (Fed) matched wide market expectations to keep benchmark interest rates and tapering targets intact during Wednesday’s Federal Open Market Committee (FOMC) meeting. However, the interesting part from the Monetary Policy Statement was, “The Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”

Fed Chairman Jerome Powell also spoke in sync with the hawkish signals from the US central bank while saying, “There’s plenty of room to raise rates.” Though, his comments like, “The rate-hike path would depend on incoming data and noted that it is ‘impossible’ to predict,” seemed to have probed the greenback bulls afterward.

Adding to the market fears and stopping the US Dollar Index is the warning from the US State Department, “If Russia invades Ukraine one way or another, Nord Stream 2 will not move forward,” per Reuters. On the same line are the recently escalating tensions between the US and China over trade and Taiwan issues. Furthermore, worsening virus conditions in Asia also seem to stop the US Treasury yields from rising further of late.

That said, the Wall Street benchmarks and commodities remained on the back foot, except for oil, following the Fed’s verdict whereas the US 10-year Treasury yields rose the most in three weeks, up eight basis points (bps) to 1.87% by the end of Wednesday’s North American session. It should be observed that the US T-bond yields ease to 1.84% while the S&P 500 Futures print mild gains by the press time.

Although the risk catalysts like Ukraine-Russia tussles and Sino-American tensions, not to forget virus woes, may play a notable role to direct short-term USD/JPY moves, major attention will be given to the first readings of the US Q4 GDP and Durable Goods Orders for December for fresh impulse.

Read: US GDP Preview: Inflation component could steal the show, boost dollar, already buoyed by Russia

Technical analysis

A clear upside break of a two-month-long resistance line, now support around 96.28, favor US Dollar Index bulls to aim for the 2021 peak near the 97.00 threshold.