US dollar index consolidates around 103.70, focus on US inflation
- The DXY struggled above 104.00 and declined modestly.
- The NFP’s optimistic forecast of lower inflation has confused market participants.
- The Fed’s Bostic forecasts interest rates between 2.00 and 2.50% by the end of 2023.
The US Dollar Index (DXY) is hovering in a narrow range of 103.58-103.77 during the Asian session as investors await the release of the US Consumer Price Index (CPI), which will dictate the future direction of the asset. The US CPI will be released on Wednesday and investors expect the numbers to slip. A preliminary estimate for the US CPI is 8.1% versus the multi-year high of 8.5% posted last month.
NFP bullish on weaker inflation forecasts
The non-farm payroll (NFP) in the United States landed at 428,000 last week. Payrolls remained above forecast at 391,000, boosting the likelihood of a 75 basis point (bps) from the Federal Reserve (Fed) for monetary policy in June. On the other hand, a weaker inflation forecast indicates that the recent quantitative measures are barricading the surge in inflation and this could force the Fed to take a less aggressive hawkish stance. Therefore, investors are in the dilemma of betting with or against the DXY, which has swung the asset.
Fed Bostic speech
Atlanta Fed President Raphael Bostic said on Monday that the Fed’s latest 50 basis point rate hike was an “aggressive” move and that the Fed could stay at that pace, according to his interview with Bloomberg. . The Fed policymaker forecasts interest rates within a defined range of 2.0-2.5% by the end of 2023.
This week’s key events: Consumer Price Index (CPI), Initial Unemployment Insurance Claims, Producer Price Index (PPI) Michigan Consumer Sentiment Index (CSI).
Significant problems on the rear boiler: Russian-Ukrainian peace talks, Chinese CPI and speech by European Central Bank (ECB) President Christine Lagarde.