USD Index comes under pressure around 102.00

• The upside momentum in the index loses traction on Friday.
• US yields appear on the defensive early in the European session.
• Flash Consumer Sentiment, Fed’s Bowman next on tap.

The greenback, in terms of the USD Index (DXY), exchanges gains with losses around the 102.00 region, or weekly highs, on Friday.

USD Index looks at risk aversion, data

The index sees its recent strong upside somewhat trimmed near the 102.00 region on the back of the mild recovery in the risk-associated universe and dwindling risk aversion at the end of the week.

In the meantime, speculation over a potential impasse in the Fed’s hiking cycle as soon as at the June 14 event continues to run high. This view was particularly exacerbated following softer-than-expected CPI results (Wednesday) and somewhat confirmed later by the weaker Producer Prices and increasing weekly Claims (Thursday).

In the US docket, the advanced Michigan Consumer Sentiment for the month of May will be the salient event on Friday seconded by the speech by FOMC’s M. Bowman (permanent voter, centrist).

What to look for around USD

The index keeps the trade near weekly peaks around 102.00 against the backdrop of some rebound in the risky assets.

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: 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.

USD Index relevant levels

Now, the index is down 0.08% at 101.98 and faces the next support at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level). On the other hand, the break above 102.15 (weekly high May 12) would open the door to 102.40 (monthly high May 2) and then 102.80 (weekly high April 10).