US Dollar Index sticks to modest gains amid rebounding US bond yields

• The USD kicked off the new week on a positive note amid rebounding US bond yields.
• The cautious market mood was seen as another factor underpinning the safe-haven USD.
• The uptick lacked bullish conviction as focus now shifts to the US CPI report on Wednesday.

The US Dollar Index climbed to fresh daily tops, around the 94.35 region during the early European session, albeit lacked follow-through momentum.

A combination of factors assisted the USD to attract some buying on the first day of a new week and stall its retracement slide from YTD tops touched in reaction to the upbeat US NFP report. As investors looked past last week's dovish FOMC statement, the US Treasury bond yields staged a solid rebound on Monday and underpinned the greenback.

The US central bank announced to lower its monthly asset purchases by $15 billion, though stuck to transitory inflation narrative at the end of November policy meeting last Wednesday. Adding to this, Fed Chair Jerome Powell – in the post-meeting press conference – said that policymakers were in no rush to hike borrowing costs.

Investors, however, seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. This, in turn, triggered a fresh leg up in the US bond yields. Apart from this, the cautious market mood was seen as another factor that underpinned the greenback's relative safe-haven status.

That said, the uptick lacked bullish conviction as investors preferred to wait on the sidelines ahead of this week's release of the latest consumer inflation figures on Wednesday. In the meantime, the US bond yields and the broader market risk sentiment will influence the USD ahead of Fed Chair Jerome Powell's remarks at an online conference.

Technical levels to watch