US Dollar Index drops to 2-day lows near 98.60

• DXY remains on the defensive below the 99.00 mark.
• The risk-on sentiment mood continues to hurt the dollar.
• Producer Prices, TIC Flows next on tap in the US docket.

The greenback, in terms of the US Dollar Index (DXY), extends the pessimism in the first half of the week and revisits the 98.60 region, or 2-day lows, on turnaround Tuesday.

US Dollar Index looks to Ukraine, Fed

The index is down for the second session in a row and fades further Monday’s bullish attempt to the 99.30 zone, always against the backdrop of persistent appetite for the risk complex and hopes of a diplomatic solution to the Russia-Ukraine conflict.

The daily pullback in the greenback also comes pari passu with the so far corrective move in US yields across the curve, as the recent selloff in cash markets around the world seems to be taking a breather on Tuesday.

While the geopolitical landscape remains almost unchanged, all the attention is expected to remain on another round of peace talks between officials of both countries later in the day.

In addition, cautiousness among investors is seen on the rise, as the Federal Reserve’s 2-day meeting kicks in later on Tuesday.

In the US data space, February’s Producer Prices are due seconded by TIC Flows for the month of January.

What to look for around USD

The index sees some correction from recent peaks in response to the mild optimism surrounding the Russia-Ukraine peace dialogue along with the moderate persistence of the sentiment towards the risk-associated space. However, the leg lower in the buck is deemed as temporary amidst the current uncertain context around the war in Ukraine, while bouts of risk aversion should prop up inflows into the safe havens and lent legs to the dollar at the same time. Also supportive of the stronger buck appears the current elevated inflation narrative, the start of the Fed’s normalization of its monetary conditions later this week and the solid performance of the US economy.

Key events in the US this week: Producer Prices, TIC Flows (Tuesday) – Retail Sales, Business Inventories, NAHB Index, FOMC Meeting, Powell press conference (Wednesday) – Building Permits, Housing Starts, Philly Fed Index, Initial Claims, Industrial Production (Thursday) – CB Leading Index, Existing Home Sales (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Futures of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is losing 0.32% at 98.77 and a break above 99.29 (high Mar.14) would open the door to 99.41 (2022 high Mar.7) and finally 99.97 (high May 25 2020). On the flip side, the next down barrier emerges at 97.71 (weekly low Mar.10) followed by 97.44 (monthly high Jan.28) and then 96.45 (55-day SMA).