USD Index regains composure around 112.00 ahead of US PCE

• The index reclaims some ground lost around 112.00 on Friday.
• US yields come under pressure and reverse Thursday’s advance.
• US inflation figures tracked by the PCE comes next in the docket.

The USD Index (DXY), which measures the greenback vs. a basket of its main rival currencies, looks to leave behind recent weakness and reclaims the 112.00 neighbourhood at the end of the week.

USD Index now looks to data

Following two consecutive sessions with strong losses, the index now manages to regain some buying interest and flirt with the 112.00 zone on Friday amidst a corrective decline in US yields and some loss of momentum in the risk complex.

Lower US yields across the curve also accompany the daily rebound in the greenback, while the hawkish rhetoric around the ongoing normalization process by the Federal Reserve remain unchanged, although it appears more and more priced in by market participants.

In the US data space, all the attention is expected to be on the inflation figures gauged by the PCE, seconded by Personal Income/Spending and the final Michigan Consumer Sentiment for the month of September.

In addition, Richmond Fed T.Barkin (2024 voter, centrist), Vice Chair L.Brainard (permanent voter, dove), Cleveland Fed L.Mester (voter, hawk), NY Fed J.Williams (permanent voter, centrist) and FOMC M.Bowman (permanent voter, centrist) are all due to speak later in the session.

What to look for around USD

Bears appear in control of the sentiment surrounding the dollar so far this week, dragging the index back below the 112.00 mark, where some contention seems to have emerged.

Propping up the dollar’s underlying positive stance appears the firmer 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.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: PCE/Core PCE, Personal Income/Spending. Final Michigan Consumer Sentiment (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.

USD Index relevant levels

Now, the index is advancing 0.06% at 111.82 and a breakout of 114.76 (2022 high September 28) would expose 115.00 (round level) and then 115.32 (May 2002 high). On the downside, the next contention aligns at 109.35 (weekly low September 20) seconded by 107.68 (monthly low September 13) and finally 107.58 (weekly low August 26).