USD Index rises to 2-week highs and targets 114.00 post-CPI

• The index gathers further pace and approaches 114.00.
• US headline/Core CPI surprised to the upside in September.
• US Initial Jobless Claims rose more than expected last week.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main rival currencies, rapidly advanced to the proximity of the 114.00 mark in the wake of the release of US CPI results.

USD Index in multi-day tops post-inflation data

The index extends further the ongoing upside momentum and approaches the 114.00 barrier after US inflation figures tracked by the CPI came in above estimates in September.

Indeed, the headline CPI rose at an annualized 8.2% during last month and 0.4% MoM. The Core CPI followed suit and rose 6.6% from a year earlier and 0.6% vs. the previous month.

Additional data saw Initial Jobless Claims rise more than expected 228K in the week to October 8.

Following the release of US CPI, CME Group’s FedWatch Tool now sees the probability of a 75 bps rate hike at nearly 97%, from around 50% a month ago.

What to look for around USD

The rally in the dollar gathers renewed traction and now re-focuses on the 114.00 barrier following the release of higher-than-predicted US inflation results.

In the meantime, 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 continues to prop up the underlying positive tone in the index.

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: Inflation Rate, Initial Jobless Claims (Thursday) – Retail Sales, Flash Michigan Consumer Sentiment, Business Inventories (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 of 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 gaining 0.46% at 113.78 and faces the next up barrier at 113.88 (monthly high October 13) followed by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the other hand, the breakdown of 110.05 (weekly low October 4) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).