- DXY reverses Wednesday’s pullback and regains upside traction.
- The FOMC expects rates to remain low at least through 2023.
- US Initial Claims, Philly Fed Index, CB Leading Index next on tap.
The greenback, in terms of the US Dollar Index (DXY), reclaims the positive ground around 91.60 following Wednesday’s strong pullback.
US Dollar Index up on yields, looks to data
The index resumes the upside following the Fed-led pullback to the 91.30 region and advances to the 91.60 area in tandem with higher US yields.
Indeed, yields of the key US 10-year reference surpass the 1.70% level on Thursday despite the FOMC re-affirmed the mega-accommodative stance of the monetary conditions and hinted at the idea that the current low levels are seen unchanged at least through 2023.
Reinforcing the above, Chairman Powell reiterated that any tapering talk remains premature, while the Fed needs to see material progress to its goals (regarding inflation and employment) instead of an improvement in forecasts.
Later in the US data space, the usual weekly Claims are due seconded by the regional manufacturing gauge tracked by the Philly Fed and the CB Leading Index.
What to look for around USD
The change of heart in the buck seen in past weeks remains underpinned by the expected better performance of the US economy vs. its G10 peers. The fresh stimulus aid is also seen adding to the latter pari passu with the investors’ perception of higher inflation in the months to come and its translation into rising US yields. However, a sustainable move higher in DXY should be taken with a pinch of salt amidst the mega-accommodative stance from the Fed (until “substantial further progress” in inflation and employment is made) and hopes of a strong global economic recovery.
Key events in the US this week: Initial Claims/Philly Fed Index (Thursday).
Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating? Future of the Republican party post-Trump acquittal.
US Dollar Index relevant levels
At the moment, the index is gaining 0.16% at 91.58 and a breakout of 92.50 (2021 high Mar.9) would expose 92.70 (200-day SMA) and finally 94.30 (monthly high Nov.4). On the other hand, the next support emerges at 91.30 (weekly low Mar.18) seconded by 91.05 (high Feb.17) and then 90.82 (50-day SMA).
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