- DXY extends weekly decline to 98.50/45 zone.
- US retail sales expanded 0.3% mom in February.
- The Fed is forecast to hike rates by 25 bps later on Wednesday.
The US dollar index (DXY), which measures the dollar against a set of its main rivals, remains bearish at 98.50 on Wednesday.
US dollar index offered before the Fed decision
The index pulls back to 3-day lows in the 98.50 area as investors continue to favor risk-on to the dollar ahead of the key FOMC event later in the American session.
Meanwhile, the Fed is largely expected to raise the fed funds target range by 25 bps at its subsequent meeting in the American session, while the second round of the balance sheet and interest rate path is also expected to be at the center of the debate at Powell’s press conference.
Some mildly positive news from the Russia-Ukraine front leaves the upbeat mood in the risk space intact so far, although volatility is seen to accelerate as markets head towards the Fed meeting.
On the US economic docket, there was nothing special after retail sales disappointed expectations following a 0.3% monthly expansion in February. Additionally, business inventories rose 1.1% MoM in January and the NAHB index fell flat to 79 for the current month.
What to look for around USD
The index steps up the correction from recent highs in response to lukewarm optimism surrounding the Russia-Ukraine peace talks coupled with persistent risk-linked sentiment towards space. However, the dollar’s downside is seen as temporary amid the current uncertain backdrop surrounding the war in Ukraine, while bouts of risk aversion should boost safe haven inflows while fueling the dollar. The strength of the dollar is also supported by the current situation of high inflation, the start of the normalization of monetary conditions by the Fed later this week and the solid performance of the US economy.
Technical levels
Now the index is shedding 0.37% at 98.64 and a break above 99.29 (14 Mar high) would open the door to 99.41 (7 Mar 2022 high) and finally 99.97 (25 May 2022 high). 2020). On the other hand, the next downside barrier emerges at 98.45 (weekly low Mar 16), followed by 97.71 (weekly low Mar 10) and then 97.44 (monthly high Jan 28).
Source: Fx Street
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