US Dollar Index aims a pullback to near 110.50 ahead of US mid-term elections, US CPI eyed

• The DXY is displaying a lackluster performance as the focus has shifted to the US mid-term elections.
• Reuters poll favors a win of Republicans at mid-term elections that may bring political instability.
• Fed Barkin hopes continuation of policy tightening at the current pace on absence of slowdown in inflation.

The US dollar index (DXY) is juggling in a narrow range above the psychological support of 110.00 in the Tokyo session. US mid-term elections for the House of Representatives and the Senate are responsible for a lackluster performance in the DXY.

Meanwhile, the risk impulse is extremely positive as investors’ risk appetite has improved amid chatter over a slowdown in the pace of rate hiking by the Federal Reserve (Fed). S&P500 gained sharply on Monday as the topping of the terminal rate is supporting the earnings guidance. The 10-year US Treasury yields have climbed to 4.22% on contrary commentary from Richmond Fed President Thomas Barkin.

US Mid-term elections

The contest among 435 seats of the House of Representatives and 34 seats of the Senate will determine the extent of the power of the Democratic party. A win in mid-term elections for the Republican party would cripple the power of US President Joe Biden as the passing of bills will also demand approval from Republicans. This could also bring a sense of political instability.

Reuters reports on an Ipsos poll that has US President Joe Biden's public approval rating slipping to 39% due to weaker economic prospects, mounting inflation, and crime.

Contrary view of Fed Barkin on interest rates

Chatters are ongoing in the overall market that the Fed interest rates are near to the proposed one at 4.80% and smaller rate hikes will be witnessed. The continuation of policy tightening at the current pace could dampen the economic prospects further, therefore a ‘baby steps’ approach would be followed to keep the current extent of economic activities alive.

While Fed Barkin is of the view that the ongoing pace of policy tightening will continue until the central bank record promising signs of a slowdown in inflationary pressures. He further added that “It would have made sense for the Fed to start tightening earlier.”

US CPI- a key trigger this week

This week, the show-stopper event will be the US Consumer Price Index (CPI) data, which will release on Thursday. As per the preliminary estimates, the headline CPI is seen lower at 8.0% vs. the prior release of 8.2%. While the core CPI that excludes oil and food prices is seen lower at 6.5% against 6.6% recorded earlier.