US Dollar Index renews monthly high near 107.70 on Fed, economic concerns

• US Dollar Index prints three-day uptrend as buyers attack one-month high.
• US data, Fedspeak convince greenback buyers amid recession fears elsewhere.
• Talks surrounding G20 adds to the market’s anxiety and the US dollar strength.
• Yields regain upside momentum amid hawkish Fed bets.

US Dollar Index (DXY) begins Friday on a firmer footing as it refreshes the monthly high around 107.60, up for the third consecutive day, amid rush to risk safety. Also favoring the DXY bulls were recently firmer US data and hawkish comments from the Fed policymakers. Further, economic fears concerning Europe and China, as well as chatters over the next meeting of the leaders of the Group of Twenty (G20) key economies, also underpin the greenback’s demand.

Recently, Bloomberg came out with the news that Chinese President Xi Jinping and Russian President Vladimir Putin plan to attend a Group of 20 Summit to be held in Bali later this year, Indonesian President Joko Widodo said in an interview. The news also mentioned that it was the first time the leader of the world’s fourth-most populous nation confirmed both of them were planning to show up at the November summit. The news adds to the market’s anxiety and fears of more drama, which in turn contributed to the flight to safety and helped the DXY to refresh the monthly high after the release.

On a different page, Philadelphia Fed Manufacturing Survey rallied to 6.2 for August versus -5 expected and -12.3 prior while the weekly Initial Jobless Claims dropped to 250K, below 265K market consensus and 252K revised prior.

Following the upbeat data, San Francisco Fed President Mary Daly mentioned that the (Fed) will continue to raise the rates to "right-size it." The policymaker added that either 50 basis points or a 75 basis points hike would be appropriate while signaling the move for the September rate decision. However, Minneapolis Federal Reserve Neel Kashkari mentioned that, per Reuters, he does not believe the county is currently in a recession. Further, the all-time hawk St. Louis Fed President James Bullard said he is leaning towards another 75 bps rate hike in September. “Trading in futures contracts tied to the Fed's policy rate suggested investors see that rate rising to a range of 3.50%-3.75% by March of next year, but then starting to fall a few months later,” said Reuters. That said, the current range of the Fed’s benchmark rates is 2.25-2.50%.

Elsewhere, Goldman Sachs and Nomura both cut the dragon nation’s growth forecasts after witnessing the latest jump in the covid numbers. Also negatively impacting the Chinese economy are the doubts over the People’s Bank of China’s (PBOC) capacity to tame recession woes. Additionally, comments from the US Trade Representative’s office stating, “Early this autumn, the US and Taiwan will begin formal negotiations on a trade initiative,” seem to renew the fears of the US-China tussle and also roil the mood.

“The economic outlook for Germany, Europe's largest economy, is gloomy due to energy price rises and supply chain disruptions,” the German Finance Ministry said in its August monthly report, per Reuters.

Amid these plays, Wall Street closed mixed and exert down pressure on the S&P 500 Futures while the US 10-year Treasury yields reverse the previous day’s retreat from the monthly high to 2.891% by the press time.

Moving on, a light calendar could challenge momentum traders but risk catalysts are the key to watch.

Technical analysis

A daily closing beyond the five-week-old horizontal resistance, now support around 107.48-43, favors the US Dollar Index bulls to aim for the yearly high near 109.30.