US Dollar Index looks firmer and advances to 4-week highs near 107.70
- The index adds to the sharp recovery and approaches 108.00.
- Hawkish Fedspeak bolstered the recent upside in the dollar.
- Yields resume the uptrend across the curve and support the greenback.
The greenback, in terms of the US Dollar Index (DXY), climbs further and reaches multi-week tops around 107.70 at the end of the week.
US Dollar Index now re-focuses on 108.00
The index advances for the third consecutive session amidst the renewed and intense buying interest in the dollar. It is worth noting that DXY posted gains in five out of the last seven sessions so far on Friday.
Further improvement in the buck comes in tandem with the continuation of the uptrend in US yields across the curve, where the belly and the long end already navigate in monthly peaks around 2.95% and 3.20%, respectively.
In the meantime, the resumption of the solid demand for the dollar appears propped up by recent hawkish comments from Fed’s rate-setters: M.Daly (hawk) leant for a 50 bps or a 75 bps at the September meeting, J.Bullard (hawk) defended a 75 bps raise and said he expects rates to be in the 3.75%-4.00% region by year end. E.George (hawk) suggested that economic growth will suffer, while N.Kashkari (centrist) added to that view and said he is not sure the Fed can reduce inflation without triggering a recession.
There are no data rereleases in the US calendar on Friday other than the speech by Richmond Fed T.Barkin (2024 voter, centrist).
What to look for around USD
The strong rebound in the dollar comes in response to some worsening conditions in the risk complex, which motivates DXY to reclaim the upper 107.00s, or multi-week peaks.
The dollar, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, namely a 50 bps or 75 bps hike in September.
Looking at the macro scenario, the dollar appears propped up by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.
Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict.
US Dollar Index relevant levels
Now, the index is gaining 0.11% at 107.60 and a breakout of 107.72 (monthly high August 19) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the other hand, immediate support comes at 104.63 (monthly low August 10) seconded by 104.07 (100-day SMA) and finally 103.67 (weekly low June 27).