US dollar index faces barricades around 104.70 on higher recession fears, US PMI in focus

• The DXY is experiencing hurdles around 104.70 as a recession looks likely on hawkish Fed.
• The US economy could return to a 2% inflation rate in a period of two years.
• An underperformance is expected from the US economy on the PMI front this week.

The US dollar index (DXY) is declining modestly in the Asian session on advancing odds of a recession in the US economy. The DXY has sensed barricades around 104.70 and is expected to extend its losses after slipping below the critical support of 104.60. After a bullish move towards 105.10 on Friday, the asset witnessed a mild correction to near 104.60, which is expected to add losses if it violates.

Fed Mester sees inflation at 2% in two-years

Cleveland Federal Reserve (Fed) President Loretta Mester in an interview with CBS News on Sunday dictated it will take at least two years to achieve inflation near 2%. Also, a slowdown in the growth targets is the expectation but is not predicting a recession situation. The Fed policymaker also see a consecutive rate hike of 75 basis points (bps) in the July monetary policy. A spree of heavy interest rate elevation may spurt the Unemployment Rate above 4% but the Fed is dedicated to doing ‘whatever it takes’ to fix the inflation mess.

Lower forecasts for the US PMI

This week, US Purchase Managers index (PMI) data by the IHS Markit will remain in focus. The economic data is due on Thursday and a vulnerable performance is expected from the data. The Composite PMI is seen higher marginally to 53.5 from the prior print of 53.4. The bifurcation of the Composite PMI into the Manufacturing and Services dictates a severe underperformance. The Services PMI is seen extremely lower at 49.1 against the prior print of 53.2. While the Manufacturing PMI is expected to slip to 54.7 from the former figure of 55.7.

Key data this week: Existing Home Sales, Initial Jobless Claims, S&P Global PMI, Bank Stress Test Info, Michigan Consumer Sentiment Index (CSI), and New Home Sales.

Major events this week:  People’s Bank of China (PBOC) interest rate decision, Reserve Bank of Australia (RBA) minutes, Bank of Japan (BOJ) minutes, European Union (EU) leaders summit.