US dollar index DXY extends decline to 94.30 ahead of key data

• The DXY index continues to correct from recent highs near 97.50.
• US yields remain below recent highs on Tuesday.
• Market attention remains on the US ISM Manufacturing PMI.

The US dollar index DXY, which measures the strength of the dollar against a basket of major currencies, extends the move lower and moves below the 97.00 level during the European session on Tuesday.

DXY Index tracks risk trends and data

The DXY index loses ground for the second consecutive session following the persistent improvement in risk appetite and the flattening of the yield curve Americans.

Indeed, the dollar came under pressure after reaching new highs last week near 97.50, at levels last seen in June 2020, as market participants they continue to digest the aggressive message after the latest FOMC decision and as they recalibrate the outlook for Fed interest rates and the timing of the start of the balance sheet reduction.

Comments from Atlanta Fed Governor R. Bostic also weighed on the dollar on Monday after virtually rule out a 50 basis point rate hike in March. M. Daly, of the San Francisco Fed, seemed to reinforce that view after he warned against tightening monetary policy too quickly. Surprisingly, E. George of the Kansas City Fed advocated more aggressive action on the balance sheetinstead of focusing exclusively on interest rates.

In today’s economic calendar, the publication of the ISM Manufacturing PMI, followed by the final Markit Manufacturing PMI figure for the month of January.

Relevant DXY US Dollar Index Levels

At time of writing, the DXY index is down 0.28% on the day, trading at 96.37. A break above 97.44 (28 Jan high), would open the door to 97.80 (30 Jun 2020 high) and finally 98.00 (round level). On the other hand, next support appears at 96.09 (55-day SMA), followed by 95.41 (Jan 20 low) and 94.62 (Jan 14 low).