USD Index gives away earlier gains and returns to 102.30

• The index fades the initial spike to the 102.60 zone.
• US Employment Cost Index disappoints at 1.0% in Q4.
• CB Consumer Confidence surprised to the downside in January.

The USD Index (DXY), which gauges the greenback vs. a bundle of its main rivals, comes all the way down to the 102.30 region after climbing to as high as the 102.60 area earlier on Tuesday.

USD Index surrenders gains post-labour data

The index saw its earlier uptick to multi-day highs around 102.60 suddenly trimmed after the US Employment Cost Index rose 1.0% QoQ in Q4, less than estimated and down from the previous 1.2%.

Indeed, that disheartening results seem to have given extra legs to the Fed’s pivot narrative and therefore forced the buck to give away almost all of the earlier advance to the 102.60 area.

Additional US data saw the House Price Index tracked by the FHFA contract at a monthly 0.1% in November, while the Chicago PMI receded to 44.3 in January (from 44.9) and the Conference Board’s Consumer Confidence retreated marginally to 107.1, also for the current month.

What to look for around USD

The dollar picks up pace and manages to leave behind the key 102.00 mark against the backdrop of persistent prudence ahead of the imminent FOMC gathering (Wednesday).

The idea of a probable pivot in the Fed’s policy continues to hover around the greenback and keeps the price action around the DXY somewhat subdued. This view, however, also comes in contrast to the hawkish message from the latest FOMC Minutes and recent comments from rate setters, all pointing to the need to advance to a more restrictive stance and stay there for longer, at the time when rates are seen climbing above the 5.0% mark.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and the continuation of its hiking cycle.

Key events in the US this week: Employment Cost Index, FHFA House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, ADP Employment Change, Final Manufacturing PMI, ISM Manufacturing, Construction Spending, FOMC Interest Rate Decision (Wednesday) – Initial Jobless Claims, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Services PMI ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Prospects for extra 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 trade conflict.

USD Index relevant levels

Now, the index is up 0.04% at 102.27 and the immediate hurdle comes at the weekly high at 102.89 (January 18) followed by 105.63 (monthly high January 6) and then 106.47 (200-day SMA). On the flip side, the breach of 101.50 (2023 low January 26) would open the door to 101.29 (monthly low May 30 2022) and finally 100.00 (psychological level).