USD Index wobbles around 102.00, focus remains on FOMC

The greenback, in terms of the USD Index (DXY), exchanges gains with losses in the 102.00 neighbourhood at the beginning of the week.

USD Index remains consolidative ahead of FOMC

The index looks to add to the recovery emerged in the second half of last week and flirts once again with the 102.00 barrier amidst vacillating risk appetite trends and steady cautiousness ahead of the upcoming FOMC gathering (February 1).

On the latter, investors have already priced in a 25 bps rate raise, although expectations around the next steps when it comes to the rate path as well as a potential emergence of a pivot in the monetary stance are expected to keep driving the sentiment in the next couple of sessions.

In the US data space, the Dallas Fed Manufacturing Index and short-term bill auctions will be the only events later in the NA session.

What to look for around USD

The dollar remains side-lined around the 102.00 zone against the backdrop of persistent prudence ahead of the upcoming FOMC gathering.

The idea of a probable pivot in the Fed’s policy continues to hover around the greenback and keeps the price action around the DXY somewhat subdued. This view, however, also comes in contrast to the hawkish message from the latest FOMC Minutes and recent comments from rate setters, all pointing to the need to advance to a more restrictive stance and stay there for longer, at the time when rates are seen climbing above the 5.0% mark.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and the continuation of its hiking cycle.

Key events in the US this week: FHFA House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, ADP Employment Change, Final Manufacturing PMI, ISM Manufacturing, Construction Spending, FOMC Interest Rate Decision (Wednesday) – Initial Jobless Claims, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Services PMI ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Prospects for extra rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is up 0.02% at 101.93 and the immediate hurdle comes at the weekly high at 102.89 (January 18) followed by 105.63 (monthly high January 6) and then 106.47 (200-day SMA). On the flip side, the breach of 101.50 (2023 low January 26) would open the door to 101.29 (monthly low May 30 2022) and finally 100.00 (psychological level).