Dollar weakens near multi-week lows as it awaits fresh impetus from FOMC minutes

• The US Dollar Index DXY is struggling to attract buyers amid expectations of a Fed rate cut by mid-2024.
• Elevated US bond yields and a softer risk tone should help limit the dollar's losses.
• Investors prefer to wait for the FOMC minutes before opening new directional positions.

The US dollar (USD) remains under some selling pressure during the Asian session on Wednesday and is trading near its lowest level in almost three weeks hit the previous day. He Dollar Index (DXY)which measures the strength of the Dollar against a basket of major currencies, weakens below the 104.00 level, while investors look forward to the release of the FOMC minutes for fresh directional impetus.

Investors will look for new clues on the Federal Reserve's (Fed) rate cut path, which will play a key role in determining the dollar's near-term path. Meanwhile, the growing acceptance that the US central bank will begin to ease its monetary policy in mid-2024 and expectations of four 25 basis point (bp) rate cuts by the end of this year They turn out to be a key factor that weakens the Dollar.

Meanwhile, investors have already ruled out the possibility of the Fed cutting rates soon, amid signs that the US economy is in good shape and hawkish comments from influential FOMC members. This continues to support elevated US Treasury yields, which along with Softer tone around stock markets could lend some support to the dollar as a safe haven and help limit any further depreciation movement.

The initial market reaction to the People's Bank of China's (PBoC) decision on Tuesday to cut the 5-year prime lending rate by 25 basis points – the biggest cut since it was introduced in 2019 – turned out to be short-lived amid the persistent geopolitical tensions. Indeed, a series of attacks on shipping in the Red Sea by Yemen's Houthi rebels have raised the risk of a new escalation of military action in the Middle East.

Additionally, a White House official said that The United States will announce a major package of sanctions against Russia on Friday to hold President Vladimir Putin responsible for the two-year war against Ukraine. On the other hand, the DXY index has been showing resistance below the 100-day SMA, which also warrants caution before positioning for an extension of the pullback from a three-month high touched last week.

Dollar Index DXY technical levels to watch