US Dollar Index aims to recapture 111.00 amid risk-off mood, hawkish Fed bets dwindle

• The DXY is oscillating in a 110.47-110.62 range, upside remains favored amid the risk-off impulse.
• A robust growth rate of 2.6% in the third quarter cemented a sharp recovery in the DXY.
• Lower consumer spending to 1.4% in Q3CY22 has trimmed bets for a bigger rate hike by the Fed.

The US dollar index (DXY) is displaying a rangebound structure in a narrow range of 110.47-110.62 in the Tokyo session. The DXY witnessed a juggernaut rally on Thursday after market sentiment turned sour as the US promised military aid to Ukraine and the robust US Gross Domestic Product (GDP) report displayed the strength of the US economy.

Robust GDP supported DXY recovery from 109.50

The mighty DXY witnessed a decent buying interest on Thursday after recording a fresh monthly low at 109.54. As the US economy reported a growth rate of 2.6% in the July to September period vs. an economic contraction in the first half of CY2022, investors rushed to channel their funds into the greenback.

Also, risk sentiment dented after the US administration promised military aid of $275 million to Ukraine to drive Russian rebels out of key areas improving safe-haven’s appeal.

Hawkish Fed bets trim on lower consumer spending

The GDP report displayed that consumer spending, which accounts for 70% of the GDP activity has expanded by 1.4%, and remained lower than the 2% growth recorded in the second quarter. A slowdown in consumer spending indicates that mounting inflationary pressures are exhausting after all.  As per the CME FedWatch tool, the chances of 75 basis points (bps) rate hike by the Federal Reserve (Fed) have dropped to 88.5%.

This has also weighed pressure on alpha generated by the US government bonds. The 10-year US Treasury yields have slipped to 3.93%.

 Adding to that, investment in real estate plunged by 26% amid soaring interest rates, which has forced individuals to postpone their housing demand due to higher EMI obligations.