US Dollar Index extends the drop and approaches 98.00

• DXY sheds further ground and trades in multi-day lows.
• US yields correct lower following recent fresh tops.
• Weekly Claims, Philly Fed Index, housing data next of relevance.

The greenback, in terms of the US Dollar Index (DXY), maintains the weekly leg lower well in place and probes the area of multi-day lows around 98.20 on Thursday.

US Dollar Index looks to geopolitics, data

The index intensifies the decline and drops for the fourth consecutive session, as market participants continue to digest Wednesday’s FOMC event and hopes of a diplomatic end to the war in Ukraine also sustains the bias towards the risk complex.

Following the sharp upside and further flattening of the curve post-FOMC event, US yields seem to be taking a breather on Thursday although they manage well to keep business in the upper end of the range nonetheless.

It is worth recalling that the Fed raised the Fed Funds Target Range by 25 bps for the first time since 2018 and the updated dots plot suggests six more rate hikes throughout this year. Powell suggested that the balance sheet runoff could start as soon as in May.

In the US data space, usual weekly Claims are due along with the always relevant Philly Fed Index, Housing Starts and Building Permits.

What to look for around USD

The index corrects further south following the start of the tightening cycle by the Federal Reserve at its meeting on Wednesday. Hopeful news from the geopolitical landscape could be weighing on the buck along with the better tone in the risk-associated complex, all putting DXY under extra pressure. Looking at the broader picture, bouts of risk aversion – exclusively emanating from Ukraine - should prop up inflows into the safe havens and lent legs to the dollar at a time when its constructive outlook remains propped up by the current elevated inflation narrative, the Fed’s lift-off and the solid performance of the US economy.

Key events in the US this week: 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 0.17% at 98.23 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 98.15 (weekly low Mar.17) followed by 97.71 (weekly low Mar.10) and then 97.44 (monthly high Jan.28).