US Dollar Index hovers around 97.00, focus remains on Russia-Ukraine

• DXY retreats from Thursday’s cycle highs near 97.70.
• Global attention remains on the events in Ukraine.
• PCE, Durable Goods Orders, U-Mich Index next of note in the docket.

The greenback, in terms of the US Dollar Index (DXY), trades without a clear direction around the 97.00 neighbourhood at the end of the week.

US Dollar Index focuses on geopolitics, risk trends

Following new cycle highs near 97.80 on Thursday, the index sparked a corrective downside and now struggles for direction in the 97.00 zone on Friday.

The acute climb of the greenback to levels last seen in June 2020 came in response to the violent resurgence of the risk aversion sentiment after Russia attacked Ukraine early on Thursday.

US yields, in the meantime, trade with modest losses on Friday after managing to erode losses on Thursday on the back of increasing inflows to safer assets like bonds.

The dollar’s pullback from recent tops was also sponsored by Fedspeak now supportive of a smaller move on rates at the Fed’s March meeting and a more gradual start of both the lift-off in rates and QT in light of the ongoing geopolitical concerns. On this, and according to CME Group’s FedWatch Tool, the probability of a 25 bps interest rate hike is now at nearly 80%, similar to levels recorded a week ago.

Later in the US data space, inflation figures tracked by the PCE will be in the limelight seconded by Durable Goods Orders, Pending Home Sales, Personal Income/Spending and the final print of the Consumer Sentiment for the current month.

What to look for around USD

The appetite for safer assets continues to bolster the dollar and keeps the index on the positive footing on the back of the deterioration of the geopolitical scenario. The constructive view in the buck remains underpinned by the current elevated inflation narrative and the probability of a more aggressive start of the Fed’s normalization of its monetary conditions. In the longer run, recent hawkish messages from the BoE and the ECB carry the potential to undermine the expected move higher in the dollar in the next months.

Key events in the US this week: PCE, Durable Goods Orders, Personal Income/Spending, Pending Home Sales, Final Consumer Sentiment (Friday).

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

US Dollar Index relevant levels

Now, the index is gaining 0.08% at 97.12 and a break above 97.73 (2022 high Feb.24) 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 96.03 (55-day SMA) followed by 95.67 (weekly low Feb.16) and then 95.17 (weekly low Feb.10).