The USD Index (DXY), which measures the strength of the US dollar against a basket of major currencies, is trading slightly lower after reaching new 5-week highs around 102.75 on Monday.
The performance of the USD Index is influenced by risk trends and statements from Federal Reserve officials. Following two consecutive days of gains, including reaching multi-week highs near 102.80 earlier in the trading session, the index is now retracing some of its advances as European markets open on Monday.
Despite US yields poised to continue the rebound from Friday, a cautious recovery in the risk market is putting mild pressure on the dollar at the start of the week. The likelihood of the Fed pausing its hiking cycle at the June 14 meeting stands at nearly 85%, according to CME Group’s FedWatch Tool.
In terms of economic data, market attention will focus on the NY Empire State manufacturing gauge and TIC Flows, as well as speeches by Atlanta Fed’s R. Bostic (hawk, voting member in 2024), Minneapolis Fed’s N. Kashkari (centrist, voting member), Richmond Fed’s T. Barkin (centrist, voting member in 2024), and FOMC’s L. Cook (hawk, permanent voting member).
Key Points to Consider Regarding the USD
The USD Index continues to trade near multi-week highs, hovering around the 103.00 level as a new trading week begins.
Recent indications suggest downward pressure on the index due to expectations that the Federal Reserve will likely pause its process of monetary normalization in the near future. The direction of future monetary policy will depend on the performance of crucial economic indicators, particularly employment and prices.
An impasse in Fed decision-making is favored due to persistent disinflation concerns, despite consumer prices remaining above the target. Other factors include emerging weaknesses in the labor market, a loss of economic momentum, and increased uncertainty surrounding the US banking sector.
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