USD INDEX REMAINS ON THE DEFENSIVE WELL BELOW 103.00 AHEAD OF KEY DATA

The USD Index (DXY), which tracks the greenback vs. a bundle of its main rival currencies, drops to 2-day lows and revisits the 102.60/55 band on Tuesday.

USD Index now focuses on data

The index drops for the second session in a row and approaches the 102.50 region on the back of further improvement in the risk complex and the so far corrective decline in US yields across the curve.

The renewed selling pressure in the dollar came pari passu with investors’ repricing of a potential “on hold” decision at the Fed’s gathering in May. So far, CME Group’s FedWatch Tool sees the probability of this scenario at around 60%.

Later in the US data space, the Consumer Confidence gauged by the Conference Board will take centre stage seconded by the FHFA’s House Price Index, Advanced Goods Trade Balance and the first testimony by FOMC’s S.Barr before the Congress.

What to look for around USD

The index resumes the downside and accelerates the decline below the 103.00 barrier amidst the so far firm recovery in the risk-associated universe.

So far, speculation of a potential Fed’s pivot in the short-term horizon should keep weighing on the dollar, although the still elevated inflation, the resilience of the US economy and the hawkish narrative from Fed speakers are all seen playing against that view for the time being.

Key events in the US this week: Advanced Goods Trade Balance, FHFA House Price Index, CB Consumer Confidence Advanced (Tuesday) – MBA Mortgage Applications, Pending Home Sales (Wednesday) – Final Q4 GDP Growth Rate, Initial Jobless Claims (Thursday) – PCE, Personal Income/Spending, Final Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.