US Dollar Index approaches 100.00 on souring market mood amid hawkish FOMC minutes

• The DXY is marching towards 100.00 as the hawkish stance of the FOMC minutes has improved safe-haven appeal.
• Balance sheet reduction is likely to remain at an elevated pace.
• US administration has imposed full blocking sanctions on Russia’s giant banks.

The US dollar index (DXY) is heading towards the psychological figure of 100.00 on tailwinds of negative market sentiment as the Federal Open Market Committee (FOMC) minutes have heightened the odds of an aggressive tightening monetary policy by the Federal Reserve (Fed) in May. The dictation of the FOMC minutes clears that the market participants should start bracing one or more 50 basis points (bps) interest rate hikes announcement by the Fed this year. Also, the size reduction of the balance sheet will be done at a rapid pace to contain inflation. Considering the extent of reduction in the balance sheet, Fed policymakers majorly agreed on monthly caps of about $60B for Treasury securities, and $35B for mortgage-backed securities (MBS).  

US Treasury Yields

The 10-year benchmark US Treasury yields retreated from the highs of 2.66%, which indicates that investors have already discounted the hawkish stance of the FOMC minutes. While the 2-year US Treasury yields that are more sensitive to the interest rates have faced more heat. There is no denying the fact that the rising expectations of a jumbo rate elevation by the Fed in May have underpinned the risk-off impulse.

The US escalates financial shock on Russia

The US administration on Wednesday announced that it is dramatically elevating the financial shock for Russia. The former has imposed full blocking sanctions on Russia's Sberbank and Alfa Bank, which holds more than one-third of Russia's total banking assets.

DXY Technical Analysis

On the daily scale, the DXY has exploded from its previous consolidation, which remained in a range of 97.73-99.42 in March. The 20- and 50-period Exponential Moving Averages (EMAs) at 98.70 and 97.83 respectively are scaling higher, which adds to the upside filters. Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bullish range of 60.00-80.00.

DXY daily chart