USD Index extends the upside and retargets 113.00 ahead of data

• The index extends the post-Fed rally near the 113.00 region.
• US 2-year note yields climb past the 5.0% mark, or 16-year highs.
• Initial Claims, ISM Non-Manufacturing, Factory Orders next on tap.

The greenback, in terms of the USD Index (DXY), climbs further north of the 112.00 mark and print new multi -session tops on Thursday.

USD Index stronger post-FOMC, looks to data

The index adds to Wednesday’s advance and looks to consolidate the recent breakout of the 112.00 barrier against the backdrop of fresh buying pressure in the greenback, as market participants continue to adjust to the hawkish message from Chief Powell at his press conference after the Fed raised rates by 75 bps.

In the US money market, the short end of the yield curve climbed to levels last seen back in May 2006 past the 5.0% level earlier in the session, although they retraced part of that advance afterwards. The belly so far trade around 4.15% zone and the long end advances to the 4.20% area.

Indeed, the continuation of the march north in the dollar was exacerbated after Powell signalled that the terminal interest rate could be higher than previously estimated, while it is still premature to consider pausing the hiking cycle.

Later in the NA session, usual weekly Claims are due along with trade balance figures, the final Services PMI, Factory Orders and the key ISM Non-Manufacturing.

What to look for around USD

The index accelerates the upside and re-focuses on the 113.00 hurdle after Chair Powell lent fresh oxygen to the dollar at the FOMC event on Wednesday.

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 buck.

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: Balance of Trade, Initial Jobless Claims, Final Services PMI, ISM Non-Manufacturing (Thursday) – Nonfarm Payrolls, Unemployment Rate (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. Fed’s pivot could emerge in … 2024? Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is gaining 0.52% at 112.69 and faces the next hurdle at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high). On the other hand, the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13).