- DXY gyrates around the 97.50 region on Thursday.
- Persistent risk aversion continues to bolster the dollar.
- Powell’s testimony, weekly Claims take centre stage later in the region.
The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rival currencies, alternates gains with losses around 97.50 amidst unabated geopolitical concerns.
US Dollar Index focuses on geopolitics, Powell
Following an inconclusive session on Wednesday, the index now trades within a tight range in the mid-97.00s, always tracking the progress of the Russian invasion of Ukraine and its impact on the global markets.
The index lost some traction after hitting fresh cycle peaks in the 97.80/85 band in response to a tepid recovery in the appetite for riskier assets on Wednesday, particularly after Chair Powell gave an upbeat assessment of the US economic recovery and signalled a slower pace of the Fed’s lift-off at this month’s meeting.
On the latter, and according to CME Group’s FedWatch Tool, the probability of a 25 bps interest rate hike at the March 16 meeting is now at nearly 98%, from around 67% a week ago.
In the US cash markets, yields erode part of Wednesday’s advance and resumes the downside following another pick-up in the demand for bonds.
In the US docket, Powell will testify once again, this time before the Committee on Banking, Housing and Urban Affairs. In addition, the usual Initial Claims are due seconded by the ISM Non-Manufacturing and Factory Orders.
What to look for around USD
In the broader scenario, the war-led risk aversion continues to bolster the dollar and keeps the index well bid on the back of the deterioration of the geopolitical arena. The constructive view in the buck also remains underpinned by the current elevated inflation narrative, the start of the Fed’s normalization of its monetary conditions this month and the solid performance of the US economy. In the longer run, the renewed hawkish views from the BoE and the ECB carry the potential to undermine the expected move higher in the dollar.
Key events in the US this week: Initial Claims, ISM Non-Manufacturing, Factory Orders, Powell’s testimony (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).
Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict under the Biden administration.
US Dollar Index relevant levels
Now, the index is gaining 0.18% at 97.53 and a break above 97.82 (2022 high Mar.2) would open the door to 98.00 (round level) and finally 99.97 (high May 25 2020). On the flip side, the next down barrier emerges at 96.08 (55-day SMA) followed by 95.67 (weekly low Feb.16) and then 95.17 (weekly low Feb.10).