US Dollar Index retreats from fortnightly high towards 96.00 as yields ease
- DXY takes a three-day uptrend to pull back from the two-week high.
- US 10-year Treasury yields are resuming their downtrend after a positive start to the week.
- Market sentiment is souring amid fears of an impending Russian invasion of Ukraine, with Feb. 16 the widely talked about date.
- US PPI, NY Manufacturing survey data will grace the calendar but risk catalyst Fedspeak is key.
The US Dollar Index (DXY) starts Tuesday on a back foot while pulling back from a fortnightly high at 96.20 in the Asian session. In doing so, the greenback’s gauge drops 0.07% during the day to print the first daily loss in four, following pessimistic US Treasury yields.
The pessimistic signals on the Russia-Ukraine story joined the growing likelihood of a 0.50% rate hike in March to keep DXY bulls in the commentary over the past few days. However, market indecision and a light calendar appear to be triggering the latest pullback for the US Dollar Index.
On the other hand, headlines covering Russian Foreign Minister Sergei Lavrov initially helped markets remain bullish on the lack of impending Russian-Ukrainian war fears, as he showed preferences for US proposals. However, comments such as “EU and NATO responses have not been satisfactory” kept risk aversion feeling high.
Comments from St. Louis Fed President James Bullard also challenged market sentiment, which reiterated its call for 100 basis point (bp) interest rate hikes by March. July 1 citing the last four inflation reports which show growing inflationary pressures.
Additionally, the CME FedWatch Toll suggesting about 61% odds for 50-75 basis points (bps) of a rate hike at the March meeting is also weighing on sentiment.
While depicting the mood, US Treasury yields consolidate rallying moves from the previous day with a further decline to 1.972%, down 2.4 basis points (bps), while S&P 500 futures are posting slight losses at the latest. On Monday, bond coupons regained bullish momentum after falling from a 2.5-year high on Friday, while Wall Street’s benchmark index closed in the red, despite a slightly positive performance earlier in the week. .
That said, the DXY’s pullback appears to have a limited shelf life as geopolitical fears merge with Fed hawkish concerns.
In addition to risk catalysts, the US Producer Price Index (PPI) for January, expected at 9.1% YoY vs. 9.7% previously, as well as the Empire State Manufacturing Index for February, bringing the market consensus of 12 vs. -0.7% of the previous reading, will also lead the DXY move.
A convergence of 21-DMA and 50-DMA limits the immediate decline of the US Dollar Index around the round number of 96.00. Until then, buyers are keeping their eyes on the November 2021 high surrounding the round number of 97.00.