US Dollar Index stays firmer above 108.00 as US inflation underpins hawkish Fedspeak

• DXY snaps two-day downtrend as buyers brace for fresh multi-year high.
• US CPI jumped to 40-year top and propelled calls for 100 bps Fed rate hike.
• Yield curves marked more inversion and magnified recession fears.
• US PPI, Jobless Claims could entertain traders, risk catalysts are the key.

US Dollar Index (DXY) justifies the four-day high inflation figures while snapping a two-day downtrend, up 0.15% near 108.20 during Thursday’s Asian session. The greenback gauge’s latest run-up could also be linked to the fears of global economic slowdown and more pessimism surrounding Europe.

Fed policymakers recently favored the market’s hawkish bias while tracking the 40-year high US inflation data. Recently, San Francisco Federal Reserve Bank President Mary Daly said that her most likely posture is a 75bp hike in July but a 100bp is possible, as reported by the New York Times. Before that Richmond Federal Reserve President Thomas Barkin conveyed his support for higher rates in the last meeting while Cleveland Federal Reserve President Loretta Mester also said, “The data on CPI does not suggest a rate hike in July any smaller than that in June.”

That said, US Consumer Price Index (CPI) for June jumped to the highest level in 40 years to 9.1% YoY versus 8.8% expected and 8.6% prior. The Core CPI, which excludes volatile food and energy prices, eased to 5.9% from 6% prior but crossed analysts' forecast of 5.8%. It should be noted that the BOC announced a 100 bps rate hike by crossing the market forecasts the previous day.

Following the US data, White House (WH) Economic Adviser Brian Deese told CNBC that the CPI data shows the urgency for Congress to pass legislation to spur semiconductor manufacturing in the US, as reported by Reuters. On the other hand, US President Joe Biden mentioned that CPI data is ‘out of data’ as gas prices have fallen.

It should be noted that the Wall Street benchmarks closed negative despite paring most losses while the US 10-year Treasury yields fell four basis points (bps) to 2.93% by the end of Wednesday’s North American session. Further, the US 2-year Treasury yields rose 3.5% on a day to reach the 3.15% level and widened the inversion with the 10-year mark, which in turn magnified recession woes. With this in mind, S&P 500 Futures drops 0.60% by the press time.

Moving on, US Producer Price Index for June and the weekly Jobless Claims will decorate the calendar and entertain DXY traders. However, major attention will be given to the Fedspeak and risk catalysts like chatters surrounding recession.

Technical analysis

A clear rebound from a one-week-old ascending support line, around 107.70 by the press time, directs US Dollar Index towards the fresh multi-year. That said, the higher high around 108.55-60 also keeps DXY bulls hopeful.