USD Index adds to recent gains near 101.50

The greenback, in terms of the USD Index (DXY), extends the optimism seen at the beginning of the week and revisits the 101.50 region on Tuesday.

USD Index looks bid ahead of US CPI

The index keeps the upbeat mood well in place in the first half of the week and hovers around the mid-101.00s ahead of the opening bell in the old continent on turnaround Tuesday.

The dollar, in the meantime, appears somewhat firmer on the back of steady cautiousness ahead of the release of key US inflation figures on May 10, while US yields appear marginally on the defensive.

In the meantime, the US Dollar seems to have found some support after a Federal Reserve’s report published late on Monday on the banking sector warned that lenders could reduce loans in response to rising concerns about slower growth, which could eventually underpin the idea that an economic slowdown could be in the offing.

In the docket, secondary tier data will see the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index as well as speeches by FOMC’s P. Jefferson (permanent voter, centrist) and NY Fed J. Williams (permanent voter, centrist).

What to look for around USD

The index probes the 101.50 area amidst a small pick-up in the risk-off sentiment in the first half of the week.

The index seems to be facing downward pressure in light of the recent indication that the Fed will probably pause its normalization process in the near future. That said, the future direction of monetary policy will be determined by the performance of key fundamentals (employment and prices mainly).

Favouring an impasse by the Fed appears the persevering disinflation – despite consumer prices remain well above the target – incipient cracks in the labour market, the loss of momentum in the economy and rising uncertainty surrounding the US banking sector.

Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Monthly Budget Statement (Wednesday) – Producer Prices, Jobless Claims (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is up 0.04% at 101.42 and the break above 102.40 (monthly high May 2) would open the door to 102.80 (weekly high April 10) and then 103.05 (monthly high April 3). On the other hand, initial contention emerges at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level).