US Dollar Index grinds higher past 113.00 as hawkish Fed bets highlight FOMC Minutes

• US Dollar Index steadies after reversing the pullback from two-week high.
• US inflation expectations, upbeat comments from Fed policymakers keep buyers hopeful ahead of Fed Minutes.
• Yields reverse the previous day’s pullback from multi-day top, fears of global economic slowdown add strength to the DXY’s demand.

US Dollar Index (DXY) picks up bids to reverse the previous day’s pullback from a fortnight top, around 113.30 during Wednesday’s Asian session. In doing so, the greenback gauge traces the rebound in the US Treasury yields and the upbeat comments from a Fed policymaker ahead of the all-important Federal Open Market Committee (FOMC) Meeting Minutes.

Cleveland Fed President Loretta Mester recently mentioned that the Federal Reserve needs to hike rates further because inflation has not slowed during her speech.

On the same line, the CME’s FedWatch Tool signals a nearly 78% chance of the Fed’s 75 basis points (bps) of a rate hike in November. Furthermore, US inflation expectations, as per the 10-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to the highest levels since September 28 while flashing 2.31% level at the latest.

It should be noted that the US 2-year Treasury yields reverse the previous day’s pullback from a two-week top while picking up bids near 4.31% by the press time.

Other than the aforementioned catalysts, the International Monetary Fund’s (IMF) latest projections also help the DXY to remain firmer due to its traditional haven status. On Tuesday, the IMF lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July while citing pressures from high energy and food cost, rate hikes as the key catalysts for the move. It’s worth noting that the Washington-based institute left the 2022 growth forecast unchanged at 3.2% versus 6.0% global growth in the 2021"

Even so, cautious sentiment ahead of the key Fed Minutes and mildly positive stock futures challenge the DXY bulls. That said, the US Producer Price Index (PPI) for September will also direct the US Dollar Index moves but major attention will be given to the minutes as bulls keep the reins.

Technical analysis

Failure to provide a daily closing below the immediate support of 10-DMA, around 112.20 by the press time, joins the impending bull cross on the MACD to direct DXY towards the 114.00 threshold before highlighting the 20-year high marked in September around 114.80.