The USD Index

The USD Index (DXY), which gauges the performance of the US dollar against a basket of its major rival currencies, has pulled back from its recent multi-week highs near the 104.30 level.

USD Index Focuses on PCE and Debt Ceiling Negotiations
This week, the index has experienced a defensive trading pattern, facing selling pressure after reaching new multi-week highs around 104.30 on May 25.

Debt ceiling negotiators have recently shown signs of a potential agreement, which involves raising the debt limit and implementing a two-year spending cap for the federal government.

Meanwhile, investors will be solely focused on important economic indicators scheduled for release, such as the inflation figures for April measured by the PCE/Core PCE, as well as Personal Income/Spending, Durable Goods Orders, Trade Balance, and the final Michigan Consumer Sentiment for May.

Key Developments Affecting the USD
Following initial resistance around the 104.30 level earlier this week, the USD Index is now facing downward pressure after its recent rally.

Additionally, the likelihood of the Federal Reserve pausing its normalization process in June has diminished, as key US fundamentals, primarily employment and prices, have demonstrated resilience amidst the ongoing surge in US yields and the DXY.

On the other hand, concerns surrounding the US banking sector have led to the tightening of credit conditions, potentially favoring a pause by the Fed in response to this uncertainty.


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