USD Index rises to 2-day highs near 112.50

The greenback, in terms of the USD Index (DXY), manages to regain some upside traction and climbs to the 112.50 region on Wednesday.

USD Index looks to data, risk trends

The index reverses two daily drops in a row and trades with decent gains so far in the European morning on Wednesday.

The improvement in the dollar comes in line with an equally healthy move higher in US yields across the curve, all against the backdrop of the generalized soft tone in the risk complex.

From the Fed’s backyard, N.Kashkari (2023 voter, dove) suggested that rates could reach the 4.5% area during next year, at the time when he left the door open to further interest rate hikes as long as inflation remains elevated.

Later in the US data space, usual weekly Mortgage Applications tracked by MBA come in the first turn seconded by Housing Starts and Building Permits, while the release of the Fed’s Beige Book will close the calendar.

What to look for around USD

The dollar manages to reverse the pessimism seen in the first half of the week so far on Wednesday.

In the meantime, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the index.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: MBA Mortgage Applications, Building Permits, Housing Starts, Fed Beige Book (Wednesday) – Initial Jobless Claims, Philly Fed Index, Existing Home Sales, CB Leading Index (Thursday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.24% at 112.26 and faces the next hurdle at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the other hand, the breakdown of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).