US Dollar Index hangs near multi-year lows, below 90.00 mark

• The USD came under some renewed selling pressure on Tuesday amid upbeat market mood.
• Progress on additional US stimulus added to the optimism and boosted investors’ confidence.
• Relatively thin liquidity conditions warrant some caution before placing fresh USD bearish bets.

The US Dollar Index (DXY), which tracks the greenback against a basket of major currencies, witnessed some fresh selling on Tuesday and slipped back below the 90.00 mark.

The index failed to capitalize on the previous day’s attempted bounce and has now dropped back closer to 32-month lows touched on December 17 amid the prevalent upbeat market mood. The US lawmakers pushed forward an enhanced COVID-19 relief package and increased investors’ appetite for perceived riskier assets.

The US House of Representatives voted on Monday to increase the size of direct payments to qualified Americans from $600 to $2,000 and sent the measure to the Senate for a vote. This comes on the back of the latest optimism over a Brexit deal and provided a strong boost to the already stronger global risk sentiment.

The risk-on environment was evident from the underlying bullish tone across the equity markets. This, in turn, was seen as one of the key factors that continued undermining the greenback’s safe-haven status. Even a modest pickup in the US Treasury bond yields did little to provide any respite to the USD bulls.

In the absence of any major market-moving economic releases, the US stimulus headlines and the broader market risk sentiment will continue to influence the USD price dynamics. Meanwhile, trading volumes remain thin amid year-end holidays, which warrants some caution before placing fresh USD bearish bets.

Technical levels to watch