The USD Index (DXY), which measures the strength of the US dollar against a basket of major currencies, continues to show strong buying interest near the 103.00 level on Thursday.
USD Index influenced by debt ceiling and data
The index has been advancing for the third consecutive session, driven by persistent uncertainty surrounding the debt ceiling discussions, despite a glimmer of optimism that emerged on Wednesday.
The current upward movement in the index coincides with rising US yields across the yield curve, with short-term rates crossing the significant 4.0% threshold and reaching levels last observed in mid-April.
In terms of data, this week’s focus includes the usual weekly jobless claims, the Philly Fed Manufacturing gauge, existing home sales, and the CB Leading Index. Additionally, FOMC members P. Jefferson (centrist, permanent voter) and Dallas Fed member L. Logan (centrist, voter) are scheduled to speak, along with FOMC member M. Barr (centrist, permanent voter) testifying before the US Senate.
Key factors influencing the USD outlook
The USD Index maintains its optimistic stance for yet another session and aims to consolidate its recent breakthrough above the 103.00 barrier.
The index has successfully moved beyond the recent consolidation phase, overcoming initial weakness following indications that the Federal Reserve may pause its normalization process in the near future. However, the future trajectory of monetary policy will depend on key economic fundamentals, particularly employment and inflation levels.
Factors favoring a potential Fed impasse include persistent disinflation concerns, despite consumer prices remaining above the target range, early signs of weakness in the job market, a loss of economic momentum, and ongoing uncertainty surrounding the US banking sector.
Important events in the US this week include MBA Mortgage Applications, Building Permits, and Housing Starts (Wednesday), followed by the Philly Fed Index, Initial Jobless Claims, CB Leading Index, and Existing Home Sales (Thursday), and finally, a speech by Fed Chair J. Powell (Friday).
Noteworthy ongoing concerns include the ongoing debate over the US economy’s trajectory toward a soft or hard landing, the possibility of reaching a terminal interest rate near its peak versus speculation of rate cuts in late 2023, the Federal Reserve’s pivot in monetary policy, and the geopolitical tensions involving Russia and China, as well as the US-China trade conflict.
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