Dollar Index eyes third straight weekly loss

• The dollar index trades near 90.65 versus 91.24 earlier this week. 
• Investors sell dollar as weak jobless claims underscore the need for stimulus. 
• A potential pullback in stocks could yield a bounce in the greenback.

The dollar index (DXY), which tracks the greenback’s value against majors, is now trading 0.20% lower on the week near 90.65, having faced rejection at 91.24 earlier this week. The index fell by 1.19% last week and over 0.6% in the preceding week. 

The greenback is extending Thursday’s decline, which saw the index drop from 91.06 to 92.82 on weak data. The US initial jobless claims rose by 137,000 to a three-month high of 853,000 in the week ended Dec. 5, boosting pressure on lawmakers to approve a relief bill to mitigate pandemic economic damage. Treasury Secretary Steven Mnuchin said relief talks with senators were making progress, according to Reuters. 

The European Central Bank (ECB) boosted its asset purchase program and expressed concerns regarding the euro’s strength. So far, however, that has failed to inspire the dollar bulls. 

Most analysts, including Morgan Stanley, foresee a continued decline in the dollar next year. Indeed, the US inflation expectations are rising and have reached multi-month highs near the Federal Reserve’s 2%. 

However, the central bank has pledged to keep rates low for sometime after price pressures rise above its target. Put simply, the US interest rates are unlikely to go higher anytime soon, and with Congress mulling another stimulus, the fiscal deficit is likely to continue rising, keeping the dollar under pressure. 

That said, the dollar may see an interim bounce if the overstretched bullish positioning in the equity markets paves the way for a pullback. 

Technical levels