USD Index drops to 2-month lows near 101.70

The greenback, when tracked by the USD Index (DXY), sheds further ground and breaks below the 102.00 support to print new 2-month lows on turnaround Tuesday.

USD Index looks offered ahead of key US CPI

The dollar extends the sell-off and drops for the fourth session in a row on Tuesday, this time breaching the key support at 102.00 the figure with certain conviction in a context dominated by the investors’ appetite for the risk-associated universe.

Adding to the dollar’s decline, US yields continue to correct lower from recent peaks ahead of the publication of crucial US inflation figures on Wednesday and steady bets for a 25 bps rate hike by the Federal Reserve at its July 26 meeting.

Minor releases in the US docket will see the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism index along with the speech by St. Louis Fed James Bullard (2025 voter, hawk).

What to look for around USD

The index loses further ground and extends the pessimism seen at the beginning of the week, this time below the key 102.00 support.

Meanwhile, the likelihood of another 25 bps hike at the Fed's upcoming meeting in July remains high, supported by the continued strength of key US fundamentals such as employment and prices.

This view was further bolstered by comments from Fed Chief Powell at the June FOMC event, who referred to the July meeting as "live" and indicated that most of the Committee is prepared to resume the tightening campaign as early as next month.

Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Fed’s Beige Book (Wednesday) – Producer Prices, Initial Jobless Claims (Thursday) – Advanced 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 late 2023/early 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is down 0.16% at 101.78 and faces the next support at 101.67 (monthly low July 11) followed by 100.78 (2023 low April 14) and finally 100.00 (round level). On the other hand, the breakout of 103.54 (weekly high June 30) would open the door to 104.56 (200-day SMA) and then 104.69 (monthly high May 31).