US Dollar Index tumbles to near 105.30 at open as the risk-on impulse rebounds, Fed in focus

• The DXY has opened lower around 105.30 but is sustaining itself above the critical support of 105.00.
• Investors should brace for a rate hike of 75 bps by the Fed.
• The tight labor market is facilitating the Fed to sound extremely hawkish hassle-free.

The US dollar index (DXY) has witnessed a steep fall at open and has tumbled below 105.30 as the uncertainty over the rate hike announcement by the Federal Reserve (Fed) is fading now. The market participants have already discounted a rate hike announcement of 75 basis points as higher price pressures are demanding a serious acceleration in the interest rate that will cap the Consumer Price Index (CPI).

Price pressures and tight labor market- a deadly duo

Soaring inflation is seldom responsible for higher interest rates in the US economy at this current juncture. The US CPI has reached 8.6% on an annual basis while the core CPI that doesn’t include food and energy prices has reached 6%. But one should be aware of the fact that the upbeat Nonfarm Payrolls (NFP) have provided more liberty to the Fed. In case, the US economy remained unable to create significant job opportunities then the Fed would resort to lower rate hikes as higher rate hikes dent the labor market. Therefore, already available higher employment opportunities in the US economy are empowering the Fed to sound extremely hawkish if it wants.

Key events this week: Producer Price Index (PPI), Retail Sales, Building permits, Initial Jobless Claims.

Major events this week:  Fed interest rate decision, Eurogroup meeting, Swiss National Bank (SNB) interest rate decision, Bank of England (BOE) interest rate, Bank of Japan (BOJ) rate decision.