US Dollar Index advances to fresh cycle highs past 110.00

• The index accelerates its gains beyond the 110.00 barrier.
• The Fed’s tightening bias returns to the fore on Monday.
• US markets will be closed due to the Labor Day holiday.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rivals, resumes the upside and reaches new cycle tops beyond 110.00 the figure on Monday.

US Dollar Index in more than 20-year highs

The index leaves behind Friday’s inconclusive price action and resumes the upside in quite a firm pace at the beginning of the week, surpassing the 110.00 mark for the first time since June 2002.

Indeed, the firmer pace in the dollar comes in tandem with the equally persistent expectations of further monetary tightening by the Federal Reserve, as the September gathering looms closer.

Speaking about the September 21 meeting, and according to CME Group’s FedWatch Tool, the probability of a 75 bps rate hike is now at 58%, from around 75% a week ago.

Nothing scheduled in the docket on Monday amidst the inactivity in the US markets due to the Labor Day holiday.

What to look for around USD

The index keeps the bullish outlook well in place near 20-year highs above the 110.00 zone.

Bolstering the dollar’s strength appears the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market. This view was reinforced by Chair Powell’s speech at the Jackson Hole Symposium.

Extra volatility in the dollar, however, should not be ruled out considering the ongoing debate around the size of the September’s interest rate hike by the Federal Reserve amidst the ongoing data-dependent stance in the Fed.

Looking at the more macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: ISM Non-Manufacturing, Final Services PMI (Tuesday) – MBA Mortgage Applications, Balance of Trade, Fed Beige Book (Wednesday) – Initial Claims, Consumer Credit Change, Fed Powell (Thursday) – Wholesale Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

US Dollar Index relevant levels

Now, the index is advancing 0.41% at 100.06 and a break above 110.27 (2022 high September 5) would aim for 111.90 (weekly high September 6 2002) and then 113.35 (weekly high May 24 2002). On the other hand, the next contention turns up at 107.58 (weekly low August 26) seconded by 106.79 (55-day SMA) and then 104.63 (monthly low August 10).