USD Index puts 103.00 to the test ahead of US CPI

• The index extends the decline and challenges 103.00.
• US inflation figures is expected to have retreated further in December.
• US yields trade slightly on the defensive on Thursday.

The greenback, when tracked by the USD Index (DXY), adds to Wednesday’s tepid losses and pokes with the 103.00 neighbourhood on Thursday.

USD Index looks at US CPI

The index drops for the second session in a row on Thursday and probes the 103.00 support on the back of the generalized flat sentiment in the global assets.

Indeed, prudence prevails among market participants ahead of the release of crucial US inflation figures for the month of December..

These results have grown in importance in past sessions, particularly after the release of the US labour market report on January 6, amidst increasing speculation of a potential pivot in the Fed’s monetary tightening.

Other than the publication of the CPI, weekly Initial Claims are also due as usual along with the Monthly Budget Statement.

What to look for around USD

The dollar remains under pressure and trades in a side-lined fashion near the 103.00 yardstick amidst investors’ prudence and ahead of US CPI due later in the session.

The mixed results from the US Nonfarm Payrolls for the month of December (Friday) seem to have reignited the idea of a probable pivot in the Fed’s policy in the next months, which comes in contrast to the message from the latest FOMC Minutes, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year.

Furthermore, the tight labour market, still elevated inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Flash Michigan Consumer Sentiment (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 of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.03% at 103.22 and the breach of 102.94 (monthly low January 9) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level). On the other hand, the next up barrier comes at 105.63 (monthly high January 6) followed by 106.38 (200-day SMA) and then 107.19 (weekly high November 30).