US Dollar Index holds above 104.60 as hawkish Fed guidance escalates recession fears

• The US Dollar Index is enjoying significant gains broadly amid uncertainty in global markets.
• S&P500 faced immense pressure as Fed’s higher interest rate peak projection has triggered recession fears.
• A weaker-than-anticipated US Retail Sales might force firms to cut prices of goods and services.

The US Dollar index (DXY) has witnessed a gradual decline to near 104.60 in the early Tokyo session. The USD Index slipped marginally after a rally to near 104.80 as investors underpinned the risk aversion theme amid soaring recession fears in the United States economy.

Risk-sensitive assets like S&P500 futures dived around 2.5% on Thursday as investors see a deep impact on firms that are debt-laden due to higher interest obligations. Firms are expected to display a significant fall in their operating margins. Federal Reserve (Fed) is still not convinced that inflation softening will continue further amid a tight labor market and rising Average Hourly Earnings.

US Dollar ignored downbeat Retail Sales data

Stellar recovery in the US Dollar after a higher interest rate peak projection by the Fed didn’t fade on Thursday’s downbeat Retail Sales data. The monthly Retail Sales data (Nov) reported a contraction of 0.6% while the street was expecting a contraction of 0.1%. A decline in retail demand indicates more downside pressure on inflation ahead as lower consumer spending is the key to a lower Consumer Price Index (CPI). This might force producers to cut prices of goods and services ahead.

Preliminary S&P PMI data eyed

For further guidance, market participants will keep an eye on the preliminary S&P Purchase Managers Index (PMI) data, which will release on Friday. As per the consensus, the Manufacturing PMI is seen unchanged at 47.7 while Service PMI would improve to 46.8 vs. the former release of 46.2. An improvement in preliminary PMI numbers might support the US Dollar further ahead.