US Dollar Index aims to capture 112.00 amid negative market sentiment, US PMI eyed

• The DXY looks to smash 112.00 for the first time in the last two decades.
• Fed’s ultra-hawkish guidance on interest rates has trimmed growth rate projections.
• In today’s session, US PMI data will remain in focus.

The US dollar index (DXY) has turned sideways after a firmer rebound from near 111.00 in the Tokyo session. The asset is gearing up for a fresh rally and initially, it will drive to refresh the day’s high and later will march higher to capture 112.00 for the first time in the last two decades. On a broader note, the asset has recovered strongly after dropping to near 110.50 as long liquidations were kicked in.

Fed’s hawkish guidance slashes growth projections

The decision of hiking interest rates by 75 basis points (bps) for the third time is not behind the carnage in risk-sensitive assets. What has haunted the market sentiment is the optimal terminal rate target of 4.6% to drag the inflationary pressures to the desired levels. Escalated interest rates won’t allow the manufacturing sector to initiate expansion and buyout plans. Also, the real estate sector will face severe heat as households will avoid home purchases due to extended monthly installments. Demand for durable goods will also hit hard.

US PMI in focus

As per the preliminary estimates, the Manufacturing PMI will land lower at 51.1 vs. the prior release of 51.5. While the Services PMI will improve to 45.0 against the prior print of 43.7. The economic data is expected to release with a downward bias as the economy is facing the headwinds of higher interest rates, higher inflation rates, and lower demand from households.

Key data next week: Durable Goods Orders, New Home Sales, Consumer Confidence, Gross Domestic Product (GDP), Core Personal Consumer Expenditure (PCE), ISM Manufacturing PMI.

Major event next week:  Bank of Japan (BOJ) minutes