US Dollar Index DXY: Bulls regain initiative near 103.60

• The DXY index reverses recent weakness and revisits 103.60.
• US yields extend their recovery along the curve after Powell.
• US housing sector data and the Fed’s Harker speech stand out on today’s economic calendar.

After three days on the defensive, the US dollar index DXYwhich measures the strength of the dollar against a basket of major currencies, manages to bring back the smile and advance to the area of ​​103.60 during the European session on Wednesday.

DXY index rises after Powell, risk appetite loses traction

The DXY index reverses three consecutive daily pullbacks and rebounds from two-week lows near 103.20 midweek, on the back of improved sentiment around the dollar and amid continued recovery in yields Americans.

In fact, investors became interested in the USD again after Fed Chairman Jerome Powell strengthened late on Tuesday Arguments for a 50 basis point hike in the Fed funds target range at upcoming meetings, at which point he reiterated once again that the Fed will raise rates until inflation shows convincing signs of losing traction. He also suggested that The Fed will have to curb the levels of economic growth seen in 2021 and hinted that the landing could be somewhat “accidental”.

In US spot markets, yields continue to recover along the curve, extending Tuesday’s rise.

As for the US data, MBA mortgage applications will be published first, followed by building permits and housing starts. Later in the American session P. Harker, Governor of the Philadelphia Fed, is also scheduled to speak.

What can we expect around the USD

The DXY index managed well to hold above the 103.00 level after the recent moderate corrective move lower. Supporting the dollar comes from investors’ expectations of a tighter rate path from the Federal Reserve and its correlation with yields, the current narrative of high inflation, and the strong health of the US labor market. In the negative aspects for the dollar appear the incipient speculations of a “hard landing” of the US economy as a consequence of the more aggressive normalization of the Fed.

Relevant DXY US Dollar Index Levels

At time of writing, the DXY index is up 0.28% on the day, trading at 103.59. A break above 105.00 (13th May high), would open the door to 105.63 (11th Dec 2002 high) and 106.00 (round level). Elsewhere, immediate support appears at 103.19 (low May 18), followed by 102.35 (low May 5) and 99.81 (low Apr 21).