US Dollar Index juggles below 112.00 on improved risk appetite, US Housing Starts buzz

• The DXY is oscillating below 112.00 and may display more weakness amid an upbeat market mood.
• Escalating US recession fears have capped the DXY’s upside.
• The continuation of the Fed’s policy tightening has resulted in lower estimates for retail real estate demand.

The US dollar index (DXY) has shifted its business below 112.00 as the risk-on impulse is catching up with severe recognition from the market participants. On Tuesday, the upside in the mighty DXY remained capped around 112.40 amid escalating recession fears in the US.

A sluggish performance by the DXY despite solid chances of the fourth consecutive 75 basis points (bps) rate hike announcement by the Federal Reserve (Fed) has exposed the asset for more support. While solid bets for a bigger Fed rate hike have kept yields at elevated levels. The 10-year US Treasury yields hold their status above 4%.

US recession fears escalate

Commentaries from shark banks amid the continuation of policy tightening measures by the Fed have accelerated the risk of recession. Strategists at J.P. Morgan this week cited that they are cutting back on their delivery longs in equities and trimming their underweight position in bonds due to increased risk that central banks will make a hawkish policy error, reported Reuters.

Also, Fitch, on the US says that Fed’s aggressive tightening cycle will increasingly weigh on job growth and consumer demand in 2023. Higher inflation and interest rates will trim real wages and will have consequences on household income and eventually on consumer spending.

Lower consensus for US Housing Starts

Wednesday’s Housing Starts data that reflects retail demand for real estate will remain in the spotlight. The economic data is expected to decline to 1.475M against the former release of 1.575M. It seems that accelerating interest rates by the Federal Reserve (Fed) have started displaying their consequences. Higher interest rates are forcing retailers to postpone their demand for personal property.