US Dollar Index looks offered, bounces off lows near 98.40

• DXY reverses part of the recent advance and revisits 98.40.
• US yields lose some upside traction, although remain near recent highs.
• US final Consumer Sentiment, Fedspeak due next in the NA session.

The US Dollar Index (DXY), which tracks the greenback vs. a basket of its main competitors, faces some downside pressure and slips back to the 98.40 region at the end of the week.

US Dollar Index weaker on improved risk appetite

The index sheds ground following two daily gains in a row on Friday on the back of the better mood in the risk-associated universe and a mild corrective downside in US yields across the curve.

Indeed, US yields appear to have run out of upside traction so far, although they manage well to keep the trade in the area of recent highs and always underpinned by speculation of a faster and tighter Fed’s normalization in the next months.

In addition, the lack of news from the geopolitical scenario now seems to be lending some support to the risk complex, while investors continue to closely follow developments from President Biden’s meetings with European leaders, with further economic sanctions against Moscow on top of the agenda.

In the US calendar, the final prints of the Consumer Sentiment are due seconded by Pending Home Sales and speeches by NY Fed J.Williams (permanent voter, centrist), Chicago Fed C.Evans (2023 voter, centrist) and FOMC’s R.Waller (permanent voter, hawkish).

What to look for around USD

The weekly recovery in the dollar failed to advance further north of the 99.00 mark, motivating sellers to return to the market on Friday. Concerns surrounding the geopolitical landscape are expected to keep propping up the demand for the buck in combination with prospects of extra tightening by the Fed. Looking at the broader picture, bouts of risk aversion – exclusively emanating from Ukraine - should underpin inflows into the safe havens and lend legs to the dollar at a time when its constructive outlook remains well supported by the current elevated inflation narrative, a potential more aggressive tightening stance from the Fed and the solid performance of the US economy.

Key events in the US this week: Final Consumer Sentiment, Pending 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 retreating 0.17% at 98.61 and a break above 98.96 (weekly high March 22) would open the door to 99.29 (high March 14) and finally 99.41 (2022 high March 7). On the flip side, the next down barrier emerges at 97.72 (weekly low March 17) followed by 97.71 (weekly low March10) and then 97.44 (monthly high January 28).