USD Index plummets to 2-month lows in the sub-109 region

• The index makes a U-turn and breaks below 109.00.
• US yields drop to multi-session lows following US inflation results.
• US Inflation Rate rose 7.7% YoY and 6.3% when it comes to the Core CPI.

The USD Index (DXY), which tracks the greenback vs. a basket of its main rivals, rapidly loses momentum and breaches the 109.00 to chart new multi-week lows on Thursday.

USD Index (much) weaker post-CPI

The selling pressure in the dollar was exacerbated after US inflation figures surprised to the downside in October, rising 7.7% vs. the same month of 2021 and 0.4% on a monthly basis. In addition, prices excluding Food and Energy costs – the Core CPI – also missed consensus and rose 6.3% over the last twelve months.

USD-sellers quickly return to the market after lower-than-expected CPI figures reignite speculation of a potential pivot in the Fed’s policy in the relatively short-term horizon. Against that, the index sinks to an area last visited in mid-September around 108.70 amidst further losses in US yields across the curve.

Additional data in the calendar saw usual Initial Jobless Claims rise by 225K in the week to November 5.

Later in the session, the October’s Monthly Budget Statement is due along with speeches by Other than the publication of the US CPI, the US docket includes the usual Initial Jobless Claims, the Monthly Budget Statement and speeches by Philly Fed P.Harker (2023 voter, hawk), Dallas Fed L.Logan (2023 voter, centrist), Cleveland Fed L.Mester (voter, hawk) and Kansas City Fed E.George (voter, hawk).

What to look for around USD

The dollar sees its downside renewed following disappointing US inflation figures in line with rising speculation of a slower pace of the Fed’s normalization process in the near term.

In the meantime, investors’ repricing of a probable pivot in the Fed’s policy now emerges as a fresh and quite reliable source of weakness for the dollar, in line with a corrective decline in US yields across the curve.

Key events in the US this week: Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Preliminary Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: US midterm elections. 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. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 1.61% at 108.67 and the breakdown of 108.62 (monthly low November 10) would open the door to 107.68 (monthly low September 13) and finally 104.73 (200-day SMA). On the other hand, the next up barrier aligns at 113.14 (monthly high November 3) followed by 113.88 (monthly high October 13) and then 114.76 (2022 high September 28).