US Dollar Index treads water below 109.00 ahead of data, Fedspeak

• The index remains side-lined in the upper 108.00s so far.
• US yields appear apathetic near recent highs on Wednesday.
• The ADP report, Fed’s Mester next on tap in the US docket.

The greenback, in terms of the US Dollar Index (DXY), keeps the range bound theme unchanged near the 109.00 region midweek.

US Dollar Index focuses on data

The index alternates daily gains with losses so far this week, as the debate around the size of the next Fed’s rate hike and upcoming key results in US fundamentals remain at the centre stage and keep dictating the price action in the global markets.

Currently, and according to CME Group’s FedWatch Tool, the probability of a 75 bps rate hike in September is now at just above 68%, from around 28% a month ago.

In the US data space, the usual MBA Mortgage Applications are due in the first turn, while the ADP report is expected to update its data for the months of June, July and August ahead of the speech by Cleveland Fed L.Mester (voter, hawk).

What to look for around USD

The greenback remains within a consolidative phase under the 109.00 hurdle so far this week after retreating from Monday’s fresh cycle peaks around 109.50 when tracked by the US Dollar Index (DXY).

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. This view was recently reinforced by Chair Powell’s speech at the Jackson Hole Symposium.

Extra volatility in the dollar, however, should not be ruled out considering the ongoing debate around the size of the September’s interest rate hike by the Federal Reserve.

Looking at the more 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: MBA Mortgage Applications, ADP Employment Change (Wednesday) – Initial Claims, Final Manufacturing PMI, ISM Manufacturing, Construction Spending (Thursday) – Nonfarm Payrolls, Unemployment Rate, Factory Orders (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

US Dollar Index relevant levels

Now, the index is retreating 0.08% at 108.73 and faces the next contention at 107.58 (weekly low August 26) seconded by 106.59 (55-day SMA) and then 104.63 (monthly low August 10). On the flip side, a break above 109.47 (2022 high July 15) would aim for 109.77 (monthly high September 2002) and then 110.00 (round level).