US Dollar Index juggles around 98.50, a rally on 50 bps rate hike expectations by Fed is on cards

• The DXY is oscillating around 98.50, awaiting trigger for further rally.
• FOMC members: Daly and Mester have framed an aggressive hawkish path for the interest rate saga.
• While chances of US recession are very much limited.

The US dollar index (DXY) is hovering around 98.50 despite rising odds of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) in May’s monetary policy. To tame the galloping inflation, elevated borrowing rates are the only measure that may bring price stability. The DXY has been consolidating in a narrow range of 97.70-99.42 for the last two weeks.

Fed’s Daly sees interest rates at 2.5% at least

San Francisco Federal Reserve Bank President Mary Daly in her speech on Wednesday has dictated a significant hawkish stance going forward. The expectation of 2.5% borrowing rates to settle down the inflation has set the US Treasury yields on fire. For a 50 bps rate hike in May, Fed’s Daly has preferred to leave the context on data. Apart from that, the Federal Open Market Committee (FOMC) member has cleared that the Ukraine crisis possesses upside risk to inflation but it’s too early to call for a global recession and the US has a very minute chance of having a recession.

Fed’s Mester advocates some 50bps rate hikes this year

Cleveland Federal Reserve Bank President Loretta Mester has advocated 50 bps interest rate hikes by the Fed more than once by the end of 2022. The FOMC member reiterates that the markets are mature enough to handle the move and it is better to do that earlier rather than later. The Fed has to corner the inflation by deploying all necessary measures. Adding to that, the FOMC member reiterates the same punchline of Fed’s Daly that the streak of rate hikes won’t lead to the US in any recession.

Key events in the US this week: Durable Goods Orders, Continuing Jobless Claims, Initial Claims, Market PMI Composite, Pending Home Sales, Michigan Consumer Sentiment Index

Eminent issues on the back boiler: Russia-Ukraine war, EU leaders summit, NATO meeting, FOMC members' speeches