US Dollar Index appears bid just above 105.00

• The index manages to leave behind part of the recent drop.
• US yields come under some mild downside pressure.
• Preliminary Consumer Sentiment next on tap in the docket.

The greenback attempts a tepid rebound and revisits the low-105.00s when tracked by the US Dollar Index (DXY) at the end of the week.

US Dollar Index now looks to data

The index trades with marginal gains just above the 105.00 yardstick after four consecutive daily pullbacks ahead of the opening bell in the old continent on Friday.

The better mood in the dollar comes amidst a small decline in US yields across the curve, which give away part of Thursday’s advance, and some profit taking sentiment in the risk complex.

In the meantime, the greenback continues to navigate in a context favourable to the riskier assets, particularly after July’s lower-than-expected US inflation figures removed traction from a potential 75 bps rate hike at the Fed gathering next month.

On the latter, San Francisco Fed M.Daly (2024 voter, hawk) said late on Thursday that the baseline case is a 50 bps rate hike in September, although she could favour a larger raise if necessary.

According to CME Group’s FedWatch Tool, the probability of a half point increase in the Fed Funds Target Range in September is more than 62%.

In the US data space, the advanced Consumer Sentiment gauged by the U-Mich Index will be the salient event later in the NA session.

What to look for around USD

The index remains under pressure in the 105.00 zone amidst the recent improvement in the risk-associated universe and rising speculation of a 50 bps rate hike by the Fed next month.

The dollar, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve.

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

Key events in the US this week: Flash Consumer Sentiment (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is gaining 0.10% at 105.19 and the breakout of 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the other hand, a break below 104.63 (monthly low August 10) would expose 103.67 (weekly low June 27) and finally 103.65 (100-day SMA).