USD Index alternates gains with losses around 101.60 ahead of US CPI

• The index hovers around 101.60 amidst a tight range.
• US yields trade without direction ahead of key data.
• US inflation figures will take centre stage later in the NA session.

The USD Index (DXY), which tracks the Greenback vs. a bundle of its main rivals, navigates without a clear direction around the 101.60 area on Wednesday.

USD Index looks at US CPI

The index appears cautious and gyrates around 101.60 following Tuesday’s uptick to weekly highs in the 101.80/85 band.

The cautious tone around the greenback – and the rest of the FX universe – is expected to remain well in place at least until the release of the April’s US inflation figures due later in the NA session.

On the latter, consensus among investors expect US consumer prices to have risen 5% YoY in April (unchanged from the previous reading) and 5.5% when it comes to core prices (vs. 5.6% prev).

Further data releases will see usual weekly Mortgage Applications by MBA, the EIA weekly report on US crude oil inventories and April’s Monthly Budget Statement.

What to look for around USD

The index keeps the trade around the 101.60 zone against the backdrop of the broad-based absence of direction in the global markets.

The index seems to be facing downward pressure in light of the recent indication that the Fed will probably pause its normalization process in the near future. That said, the future direction of monetary policy will be determined by the performance of key fundamentals (employment and prices mainly).

Favouring an impasse by the Fed appears the persevering disinflation – despite consumer prices remain well above the target – incipient cracks in the labour market, the loss of momentum in the economy and rising uncertainty surrounding the US banking sector.

Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Monthly Budget Statement (Wednesday) – Producer Prices, Jobless Claims (Thursday) – Flash Michigan Consumer Sentiment (Friday).

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. Debt ceiling issue.

USD Index relevant levels

Now, the index is up 0.01% at 101.66 and the break above 101.83 (weekly high May 9) would open the door to 102.40 (monthly high May 2) and then 102.80 (weekly high April 10). On the other hand, initial contention emerges at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level).