USD Index climbs to 20-year highs and targets 112.00

• The index picks up further pace and approaches 112.00.
• US yields in the short end of the curve rose past 4.00%.
• Initial Claims, CB Leading Index next of note in the docket.

The greenback, when tracked by the USD Index (DXY), climbs to new highs in levels last seen in June 2002 near 111.80 on Thursday.

USD Index bid after Fed, looks to data

The optimism around the dollar remains well and sound amidst increasing tailwinds after the Federal Reserve raised the Fed Funds Target Range (FFTR) by 75 bps to 3.00%-3.25% at its event on Wednesday.

Indeed, the renewed strength in the buck has been also reinforced by Powell’s comments reinforcing the tighter-for-longer stance from the Fed, in line with what he already announced at the Jackson Hole Symposium.

The move higher in the dollar also comes in tandem with further upside in US yields, where the short term of the curve surpasses the 4.00% mark for the first time since October 2007.

In the US data space, usual weekly Claims are due seconded by the CB Leading Index.

What to look for around USD

The dollar’s rally remains unabated and it has been fuelled further by the recent FOMC event and comments by Chair Powell. The next target of note in DXY now emerges at the 112.00 area.

Bolstering the dollar’s underlying positive stance appears the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

Looking at the more macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Initial Claims, CB Leading Index (Thursday) – Flash Manufacturing/Services PMIs, Powell speech (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is advancing 0.38% at 111.76 and a breakout of 111.81 (2022 high September 22) would expose 112.00 (round level) and then 113.50 (weekly high May 24 2002). On the downside, the next contention aligns at 107.92 (55-day SMA) seconded by 107.68 (monthly low September 13) and finally 107.58 (weekly low August 26).