US Dollar Index turns negative below 97.00

• DXY corrects lower and drops to 96.80.
• Markets’ mood improves on potential Russia-Ukraine talks.
• US PCE rose 6.1% YoY in January, Core PCE gained 5.2%.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main competitors, comes under pressure and slips back below the 97.00 yardstick on Friday.

US Dollar Index looks offered on auspicious news

The index gives away further ground following a tepid change in the markets’ mood after news reported a probable meeting between Russian and Ukrainian officials despite the relentless advance of Russian troops into the country.

The rebound in the appetite for riskier assets also see US yields leaving behind the earlier pessimism and now trading with modest gains for the day.

In the US calendar, inflation tracked by the headline PCE rose 6.1% YoY and 5.2% when excluding food and energy costs. Additional data noted Durable Goods Orders expanding 1.6% MoM in January, Personal Income coming in flat vs. the previous month and Personal Spending growing 2.1% MoM.

Later in the session, Pending Home Sales and the final print of the Consumer Sentiment are also due.

What to look for around USD

The appetite for safer assets continues to bolster the dollar and keeps the index on the positive footing on the back of the deterioration of the geopolitical scenario. The constructive view in the buck remains underpinned by the current elevated inflation narrative and the probability of a more aggressive start of the Fed’s normalization of its monetary conditions. In the longer run, recent hawkish messages from the BoE and the ECB carry the potential to undermine the expected move higher in the dollar in the next months.

Key events in the US this week: PCE, Durable Goods Orders, Personal Income/Spending, Pending Home Sales, Final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict under the Biden administration.

US Dollar Index relevant levels

Now, the index is losing 0.30% at 96.75 and a break above 97.73 (2022 high Feb.24) would open the door to 97.80 (high Jun.30 2020) and finally 98.00 (round level). On the flip side, the next down barrier emerges at 96.03 (55-day SMA) followed by 95.67 (weekly low Feb.16) and then 95.17 (weekly low Feb.10).