US Dollar Index drops to 2-week lows near 95.40 post-ECB

• DXY accelerates losses and retests the 95.40 area.
• The ECB left policy rate unchanged, sees inflation receding in H2 2022.
• Initial Claims rose by 238K in the week to January 29.

The greenback quickly left behind the promising start of the session and slipped back into the negative territory well south of the 96.00 mark when tracked by the US Dollar Index (DXY) on Thursday.

US Dollar Index weaker on EUR strength

The index now navigates the area of 2-week lows around 95.50 in the wake of the press conference by Chairwoman C.Lagarde, all after the ECB left key rates unchanged at its event earlier on Thursday.

Indeed, the greenback came under extra pressure after buyers flocked once again to the European currency following Lagarde comments on inflation, which she sees grinding lower in the second half of the year. Lagarde also said the central bank will decide on the future of the bond buying pace at the March meeting, adding that there will be no move on rates until the bank finishes the net bond purchases.

In the US docket, Challenger Job Cuts increased a tad to 19.064K in January, Initial Claims rose by 238K in the week to January 29, the final Services PMI eased to 51.2, the ISM Non-Manufacturing PMI deflated to 59.9 and Factory Orders contracted at a monthly 0.4% in December.

What to look for around USD

The dollar quickly surrendered earlier gains, as the move beyond the 96.00 barrier lacked conviction and was sharply reversed following the ECB monetary policy meeting. Some reasons behind the strong correction in the buck seen as of late can be found in the improved mood in the risk-associated universe and dormant US yields (despite navigating the upper end of the recent range). However, the constructive outlook for the greenback is expected to remain unchanged for the time being on the back of higher yields, persistent elevated inflation, supportive Fedspeak and the solid pace of the US economic recovery.

Key events in the US this week:) Initial Jobless Claims, ISM Non-Manufacturing PMI, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Fed’s rate path this year. US-China trade conflict under the Biden administration. Debt ceiling issues. Escalating geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is losing 0.45% at 95.54 and a break above 97.44 (2022 high Jan.28) would open the door to 97.80 (high Jun.30 2020) and finally 98.00 (round level). On the flip side, the next down barrier emerges at 95.42 (weekly low Feb.3) seconded by 95.41 (low Jan.20) and then 94.62 (2022 low Jan.14).