US Dollar Index remains under pressure near 98.50 ahead of FOMC

• DXY extends the weekly decline to the 98.50/45 band.
• US Retail Sales expanded 0.3% MoM in February.
• The Fed is forecasted to hike rates by 25 bps later on Wednesday.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rivals, remains depressed around the mid-98.00s on Wednesday.

US Dollar Index offered ahead of Fed decision

The index retreats to 3-day lows in the 98.50 area, as investors continue to favour the risk complex in detriment of the greenback ahead of the key FOMC event due later in the NA session.

The Fed, in the meantime, is largely expected to raise the Fed Funds Target Range by 25 bps at its gathering later in the NA session, while the balance sheet runoff and the interest rate path are also predicted to be in the centre of the debate at Powell’s press conference.

Some mildly positive news from the Russia-Ukraine front leaves the upbeat mood in the risk-associated universe intact so far, although volatility is seen gathering pace as markets get closer to the Fed meeting.

In the docket, nothing to write home about after Retail Sales disappointed expectations following a 0.3% monthly expansion in February. In addition, Business Inventories rose 1.1% MoM in January and the NAHB Index deflated to 79 for the current month.

What to look for around USD

The index intensifies the correction from recent peaks in response to the tepid optimism surrounding the Russia-Ukraine peace dialogue along with the persistence of the sentiment towards the risk-linked galaxy. However, the leg lower in the buck is deemed as temporary amidst the current uncertain context around the war in Ukraine, while bouts of risk aversion should prop up inflows into the safe havens and lent legs to the dollar at the same time. Also supportive of the stronger buck appears the current elevated inflation narrative, the start of the Fed’s normalization of its monetary conditions later this week and the solid performance of the US economy.

Key events in the US this week: Retail Sales, Business Inventories, NAHB Index, FOMC Meeting, Powell press conference (Wednesday) – Building Permits, Housing Starts, Philly Fed Index, Initial Claims, Industrial Production (Thursday) – CB Leading Index, Existing Home Sales (Friday).

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

US Dollar Index relevant levels

Now, the index is losing 0.37% at 98.64 and a break above 99.29 (high Mar.14) would open the door to 99.41 (2022 high Mar.7) and finally 99.97 (high May 25 2020). On the flip side, the next down barrier emerges at 98.45 (weekly low Mar.16) followed by 97.71 (weekly low Mar.10) and then 97.44 (monthly high Jan.28).