USD Index extends the upside near 104.60, looks at PCE

• The index maintains the positive bias well past 104.00.
• US yields recede further ahead of key US data.
• US inflation tracked by the PCE takes centre stage.

The greenback, in terms of the USD Index (DXY), looks to extend the weekly advance well north of the 104.00 barrier at the end of the week.

USD Index focused on data, Fedspeak

The index advances for the fourth consecutive session amidst the continuation of the weekly recovery in levels last seen back in early January.

The relentless march north in the dollar comes despite some loss of upside momentum in US yields across the curve and appears underpinned by the perception that the Fed could remain within a more restrictive territory for longer.

So far, CME Group’s FedWatch Tool sees the probability of a 25 bps rate hike at nearly 72%, while the terminal rate is seen beyond the key 5.0% level.

In the US docket, the PCE/Core PCE will be in the limelight along with Personal Income, Personal Spending, New Home Sales and the final Michigan Consumer Sentiment gauge.

In addition, FOMC Governor P.Jefferson (permanent voter, centrist) and Cleveland Fed L.Mester (2024 voter, hawk) are also due to speak.

What to look for around USD

The dollar remains bid north of the 104.00 barrier amidst the generalized lack of traction in the risk complex and rising cautiousness prior to key releases in the US docket.

The probable pivot/impasse in the Fed’s normalization process narrative is expected to remain in the centre of the debate along with the hawkish message from Fed speakers, all after US inflation figures for the month of January showed consumer prices are still elevated, the labour market remains tight and the economy maintains its resilience.

The loss of traction in wage inflation – as per the latest US jobs report - however, seems to lend some support to the view that the Fed’s tightening cycle have started to impact on the still robust US labour markets somewhat.

Key events in the US this week: PCE, Core PCE, Personal Income/Spending, Final Michigan Consumer Sentiment, New Home Sales (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Slower pace of interest rate hikes by the Federal Reserve vs. shrinking odds for 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 gaining 0.02% at 104.60 and faces the next hurdle at 104.77 (monthly high February 23) seconded by 105.63 (2023 high January 6) and then 106.46 (200-day SMA). On the other hand, the breach of 103.41 (55-day SMA) would open the door to 102.58 (weekly low February 14) and finally 100.82 (2023 low February 2).