US Dollar Index advances towards 99.00 amid tightening stance from Fed’s policymakers

• The DXY is approaching 99.00 on tailwinds of higher rate hike expectations.
• NATO community has decided to establish four new battle groups to strengthen their collective defense.
• The outperformance of the US economic indicators is raising the odds of a 50 bps rate hike.

The US dollar index (DXY) is gradually advancing towards the round level resistance of 99.00 as the Federal Open Market Committee (FOMC) members have started preparing investors to brace a 50 basis point (bps) interest rate hike in May monetary policy. To tame the galloping inflation, Federal Reserve (Fed) policymakers are welcoming a healthy interest rate elevation. Apart from that, the headlines coming from Brussels where US President Joe Biden is discussing further sanctions on Russia and strategy to strengthen NATO with its NATO counterparts are improving the appeal for the greenback.

Minutes from the NATO meeting

To retaliate against Russia’s invasion of Ukraine, Western leaders in Brussels have decided to establish four new battle groups in Slovakia, Romania, Bulgaria, and Hungary, which may strengthen their collective defense, particularly on the Eastern flank. This has further escalated tensions for Russia, which may cause a minor delay in the ceasefire between Russia and Ukraine.

Performance of Economic Indicators

The US docket reported Initial Jobless Claims and Markit (Manufacturing and Services) PMI on Thursday. The Initial Jobless Claims landed at 187k much lower than the preliminary estimate and previous figure of 212k and 215k respectively.

While the Markit Manufacturing and Services PMI were printed at 58.5 and 58.9 outperformed the market consensus of 56.3 and 56 respectively. The outperformance from economic indicators has underpinned the greenback.

Key events in the US on Friday: Pending Home Sales, Michigan Consumer Sentiment Index, and Fed Governor Christopher Waller’s speech.

DXY Technical Analysis

On an hourly scale, the DXY is approaching towards the upper trendline, which is placed from March 7 high at 99.41 while the lower trendline placed from February 23 low at 95.77 will continue to act as major support going forward. The greenback-based index has stabilized above the 200-period Exponential Moving Average, which is hovering around 98.50.

DXY hourly chart