US Dollar Index inches towards 100.00 on hawkish stance from Fed officials, yields recapture 2.5%

• The DXY has established above 99.00 and is eyeing 100.00 amid hawkish Fed officials.
• Fed Governor Lael Brainard has cleared that the Fed will start reducing the balance sheet size soon.
• An outperformance of US Services PMI has infused fresh blood into the DXY.

The US dollar index (DXY) has finally turned imbalance after consolidating in a range of 97.68-99.42 over one month. The strength of the asset amid an aggressive hawkish stance from the Federal Reserve (Fed) policymakers has supported the DXY to establish above 99.00 and has also exposed it to kiss the psychological figure of 100.00.

Fed Governor Lael Brainard’s speech

The hawkish remarks from Fed Governor Lael Brainard have injected an adrenaline rush into the DXY. The Federal Open Market Committee (FOMC) member from her speech has cleared that the Fed is going to transfer the burden of soaring inflation and therefore investors should brace for an aggressive interest rate hike in May. Adding to that, the FOMC member has stated that the Fed is “inclined to announce a stronger action if the parameters of inflation and its expectations indicate that such action is highly required.” Also, the Fed will start reducing its balance sheet size at a rapid pace to corner the sheer inflation.

US ISM Services PMI

US Institute for Supply Management (ISM) has unfolded the Services Purchase Managers Index (PMI) on Tuesday and has displayed an outperformance from the US economy against the estimates. The US ISM Services PMI landed at 58.3, higher than the preliminary estimate of 58.3 and prior print of 56.5, which has infused fresh blood into the mighty DXY.

10-year US Treasury yields cross 2.5%

The hawkish stance on May’s monetary policy by Fed Governor Lael Brainard has raised the odds of a 50 basis point (bps) interest rate hike significantly. This has fueled the 10-year US Treasury yields, which have recaptured 2.55%.

Going forward, the Fed will release the FOMC minutes on Wednesday, which will unfold the mindset of Fed Chair Jerome Powell and his colleagues behind featuring a 25 (bps) interest rate hike in March.