US Dollar Index retreats from cycle peaks, back to 99.50

• DXY corrects lower after hitting tops around 99.75.
• US yields also abandon the area of recent peaks.
• Initial Claims, Fedspeak next on tap in the NA session.

The greenback, when tracked by the US Dollar Index (DXY), sheds part of the recent gains and return to the 99.50 region on Thursday.

US Dollar Index keeps targeting 100.00

After five consecutive daily advances, the index now comes under some pressure following Wednesday’s peaks in the 99.75/80 band, always against the backdrop of a mild improvement in the risk complex and a bout of weakness in US yields.

DXY kept the bid bias unchanged on Wednesday, although it retreated from fresh highs after the FOMC Minutes failed to surprise market participants, as the hawkish tone was in line with the one of the statement of the March 16 meeting.

On the latter, the FOMC Minutes unveiled further details regarding the unrolling of the QE programme. Starting in May, the Committee will now reduce the balance sheet by $60B of bonds and $65B of MBS. In addition, many participants favoured a 50 bps rate hike last month, although they finally decanted for a smaller raise in response to the uncertainty from the war in Ukraine.

Later in the NA session, usual weekly Claims are due seconded by February Consumer Credit Change. In addition, St. Louis Fed J.Bullard (voter, hawkish), Atlanta Fed R.Bostic (2024 voter, centrist), Chicago Fed C.Evans (2023 voter, centrist) and NY Fed J.Williams (permanent voter, centrist) are all due to speak later in the session.

What to look for around USD

The dollar remains bid and gradually approaches the psychological 100.00 barrier. So far, the near-term price action in the greenback continues to be dictated by geopolitics, while the case for a stronger dollar remains well propped up by the current elevated inflation narrative, a potential more aggressive tightening stance from the Fed, higher US yields and the solid performance of the US economy.

Key events in the US this week: Initial Claims, Consumer Credit Change (Thursday) – Wholesale Inventories (Friday).

Eminent issues on the back boiler: Escalating geopolitical effervescence vs. Russia and China. Fed’s rate path this year. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is retreating 0.13% 99 49 and faces initial contention at 97.68 (weekly low March 30) seconded by 97.38 (55-day SMA) and then 96.77 (100-day SMA). On the flip side, a break above 99.76 (2022 high April 6) would open the door to 100.00 (psychological level) and finally 100.55 (monthly high May 14 2020).