US Dollar Index oscillates around 103.50 as investors await Fed’s rate hike

• The DXY is struggling to sustain above 103.50 amid uncertainty over the Fed’s policy announcement.
• In addition to a rate hike, investors are expecting quantitative tightening and hawkish guidance.
• Inflation may inch further as commodities have not shown any sign of exhaustion yet.

The US dollar index (DXY) is failing to find any direction as investors have squeezed their positions significantly amid uncertainty over the release of the monetary policy by the Federal Reserve (Fed). The DXY has remained on the seventh heaven for a few trading weeks on bolstered odds of a jumbo rate hike by the Fed.

Expectations from the Fed in the monetary policy meeting

An announcement of interest rate elevation by 50 basis points (bps) is on the cards. The Fed is going to bring a healthy stretch in the interest rates to corner the inflation mess.  Apart from that, the galloping balance sheet demands a serious reduction now, therefore investors should brace for quantitative tightening. Lastly, more rate hikes by half a percent for the remaining year could be announced by the Fed. The Fed is determined to return to the neutral rate culture by the end of this year and for the happening of the event, bulk rate hikes are highly required.

On the front of the economic indicators, the Fed could dictate that inflation is expected to bring more upside to the table as commodity and fossil fuel prices have not shown any kind of exhaustion yet. Also, the tight labor market will stay for longer and the economy is much more solid to face the heat of liquidity contraction going forward.

Key events this week: ISM Services PMI, Initial Jobless Claims, Nonfarm Payrolls (NFP), Unemployment Rate.

Eminent issues on the back boiler: Russia-Ukraine Peace Talks, Fed interest rate decision, Bank of England (BOE) interest rate announcement.