US Dollar Index drops further below 99.00 with eyes on Fed

• DXY remains sidelined after snapping three-day uptrend the previous day.
• Yields retreat from multi-day top amid mixed headlines from Ukraine-Russia, covid fears from China.
• Mixed US data, pullback in inflation expectations adds interest to today’s FOMC.
• While a 0.25% rate-hike is given, economic projections and Powell’s speech will be the key.

US Dollar Index (DXY) tracks a pullback in Treasury yields to extend the previous day’s downbeat performance to 98.90, down 0.08% intraday on the Fed day.

Mixed concerns surrounding the Kyiv-Moscow talks joined not to impressive US data, as well as market’s fear ahead of today’s Federal Open Market Committee (FOMC) to weigh on the greenback gauge on Tuesday. It’s worth noting that China’s covid woes added to the risk-off catalysts and restricted the DXY losses.

Starting with the Ukraine-Russia crisis, Ukraine President Volodymyr Zelenskyy’s adviser triggered hopes of peace between Moscow and Kyiv, which in turn improved market sentiment during early Tuesday. However, Russian President Vladimir Putin said Kyiv is not serious about finding a mutually acceptable solution and poured cold water on the face of optimists.

Following that, Mykhailo Podoliyak, one of the representatives of Ukraine at Russian-Ukrainian negotiations cites room for compromise. It’s worth noting that the UK added more sanctions on Russia whereas Japan is up for removing Moscow from favored trade status. In return, Moscow banned Canadian PM from entering their country and levied sanctions on US President Joe Biden. Recently, Reuters quoted Interfax Ukraine News while saying, “Ukrainian President Volodymyr Zelenskyy said on Wednesday that the positions of Ukraine and Russia at peace talks were sounding more realistic.”

Elsewhere, the US Producer Price Index (PPI) matched YoY expectations of 10% growth whereas NY Empire State Manufacturing Index printed the biggest downside since May 2020.

It’s worth noting that China’s record covid numbers and lockdowns in multiple cities renew early pandemic woes but couldn’t weigh on Wall Street as T-bond yields failed to stay firmer around the multi-day top.

That said, the US 10-year Treasury yields ended Tuesday unchanged despite rising to mid-2019 levels during the initial day, down one basis point (bp) to 2.149% at the latest. On the same line, the five-year bond coupon also eases from the highest levels since May 2019 marked the previous day. Further, S&P 500 Futures print mild losses despite the positive performance of Wall Street.

Moving on, DXY traders will pay attention to the Fed’s verdict even if the 0.25% rate-hike is almost given. The reason could be linked to the doubts over future economic growth and inflation scenarios due to the latest geopolitical fears. As a result, Fed Chairman Jerome Powell has a tough task on hand to please bulls.

Read: Fed Interest Rate Decision Preview: Is history a guide?

Ahead of the Fed, Ukraine-Russia updates, China COVID-19 news and the US Retail Sales for February, expected to ease to 0.4% from 3.8% prior, will direct the US Dollar Index (DXY) moves.

Read: US Retail Sales Preview: Relentless shopper may provide dollar-selling opportunity ahead of the Fed

Technical analysis

Even if a one-week-old resistance line challenges US Dollar Index bulls around 99.25, the 10-DMA defends DXY optimists around 98.70. Even if the quote drops below 10-DMA, an upward sloping trend line from February 21, near 98.35, adds to the downside filters. Additionally, bullish MACD signals and firmer RSI also suggest further upside for the greenback gauge.