USD Index bounces off lows near 101.00, focus shifts to ECB, data

• The index trades close to the 101.00 region on Thursday.
• Investors shift their attention to the ECB meeting.
• Weekly Claims, Balance of Trade next of note in the docket.

The USD Index (DXY), which gauges the greenback vs. a basket of its main competitors, alternates gains with losses near the 101.00 neighbourhood on Thursday.

USD Index now looks to data

The index trades without a clear direction in the lower end of the weekly range near the 101.00 mark, as investors continue to adjust to the Fed’s dovish hike on Wednesday.

On the latter, the Federal Reserve matched previous estimates and raised interest rates by 25 bps to 5.00%-5.25% at its meeting on Wednesday and also suggested that the end of its hiking cycle could be near. In addition, the Committee stressed that future decisions on interest rates will depend on data and the assessment of monetary policy will be on the meeting-by-meeting approach.

Speaking about central banks, the ECB meets later in the European afternoon and is also expected to tighten its policy stance by 25 bps, although the main divergence with the Fed resides in the ECB’s intentions to extend the hiking cycle to the June and July gatherings.

The irresolute price action in the dollar, in the meantime, comes amidst a so far tepid bounce in US yields across the curve following a couple of sessions with marked losses.

In the data space, usual Initial Jobless Claims are due along with Balance of Trade figures.

What to look for around USD

The index puts the 101.00 zone to the test pari passu with investors’ assessment of the last FOMC event.

Looking at the broader picture, the index now appears under pressure after the Federal Reserve signaled a most likely pause in its normalization process, while economic fundamentals will now rule the direction of the future moves of the monetary policy.

In favour of a Fed’s pause appears the persevering disinflation – despite consumer prices remain well above the target - and nascent easing in the labour market, all amidst steady speculation of a a probable recession.

Key events in the US this week: Balance of Trade, Initial Jobless Claims (Thursday) – Nonfarm Payrolls, Unemployment Rate, Consumer Credit Change.

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. 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 101.24 and a break above 102.80 (weekly high April 10) would open the door to 103.05 (monthly high April 3) and then 103.09 (100-day SMA). On the other hand, immediate support aligns at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level).