US Dollar Index trims losses and reclaims the 108.60 region

• The index fully reverses the initial drop to the 108.00 zone.
• US Q2 GDP revision surprised to the upside at -0.6% QoQ.
• All the attention remains on the start of the Jackson Hole Symposium.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, manages to back-pedal the initial pessimism and returns to the 108.60 area.

US Dollar Index regains composure after data

Following a drop to as low as the 108.00 zone – or weekly lows – the index regains some balance and now flirts with the 108.60 area despite declining US yields and following upbeat results from the US calendar.

Indeed, another revision of the GDP Growth Rate now sees the economy contracting 0.6% QoQ in the April-June period, while Initial Claims rose by 243K in the week to August 20, also surpassing estimates.

In the meantime, the Jackson Hole Symposium will kick in later in the session amidst investors’ preference now tilted towards a 75 bps rate hike in September and expectations of further support for the Fed’s tightening plans from Chief Powell at his speech on Friday.

What to look for around USD

The resumption of the risk-on mood among investors drags the dollar from the recent test of yearly peaks north of the 109.00 barrier.

Bolstering the dollar’s strength appears the firm conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

DXY, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, namely a 50 bps or 75 bps hike in September.

Looking at the macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Jackson Hole Symposium, Advanced Q2 GDP Growth Rate, Initial Claims (Thursday) - Jackson Hole Symposium, PCE, Personal Income, Personal Spending, Fed Powell, Final Consumer Sentiment (Friday) - Jackson Hole Symposium (Saturday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict.

US Dollar Index relevant levels

Now, the index is retreating 0.06% at 108.53 and faces the next support at 107.99 (weekly low August 25) seconded by 106.21 (55-day SMA) and then 104.63 (monthly low August 10). On the upside, a break above 109.29 (2022 high July 15) would aim for 109.77 (monthly high September 2002) and then 110.00 (round level).