- The DXY index turns around the 97.50 region on Thursday.
- Persistent risk aversion continues to bolster the dollar.
- Powell’s testimony and initial jobless claims stand out on today’s economic calendar.
The US dollar index DXYwhich measures the strength of the dollar against a basket of major currencies, alternates gains with losses of around the region of 97.50 during the European session on Thursday amid geopolitical concerns.
DXY Index focuses on geopolitics and Powell
After a choppy session on Wednesday, the DXY index is now trading in a tight range around the 97.50 region, always tracking the progress of the Russian invasion of Ukraine and its impact on global markets.
The DXY index lost some traction after reaching new highs in the 97.80/85 zone in response to a timid recovery in appetite for riskier assets on Wednesday, particularly after Chairman Powell gave an optimistic assessment of the US economic recovery and signaled a slower pace in the Fed’s first rate hike at this month’s meeting (0.25% instead of a double dose of 0.50%).
On this last point, and according to the CME Group’s FedWatch tool, the probability of a 25 basis point interest rate hike at the March 16 meeting is now almost 98%from about 67% a week ago.
In the US cash markets, yields give back part of Wednesday’s advance and resume their downtrend after another uptick in bond demand.
On the American economic calendar, Powell will testify once again, this time before the Commission on Banking, Housing and Urban Affairs. Additionally, Initial Jobless Claims, ISM Non-Manufacturing PMI and Factory Orders will also be released today.
What can we expect around the USD
In the broader scenario, the risk aversion generated by the war between Russia and Ukraine continues to strengthen the dollar and keeps the DXY index well supported. Risk-off sentiment aside, the constructive view on the dollar remains supported by currently high inflation, as well as the likelihood of a more aggressive start to normalizing monetary conditions by the Fed. Aggressive messages from the BoE and the ECB have the potential to weigh on the expected upward movement in the dollar in the coming months.
Relevant DXY US Dollar Index Levels
At time of writing, the DXY index is gaining 0.18% on the day, trading at 97.53. A break above 97.82 (2nd Mar high), would open the door to 98.00 (round level) and 99.97 (25th May 2020 high). On the other hand, the next support appears at 96.08 (55-day SMA), followed by 95.67 (16th Feb low) and 95.17 (10th Feb low).
Source: Fx Street
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