US Dollar Index tumbles to weekly lows near 108.00 ahead of Jackson Hole

• The index drops further and revisits the 108.00 area.
• The Jackson Hole Symposium kicks in later on Thursday.
• GDP Growth Rate, weekly Claims next on tap in the calendar.

The dollar gives away almost all its weekly gains and retreats to the 108.00 neighbourhood when tracked by the US Dollar Index (DXY) on Thursday.

US Dollar Index looks capped near 2022 highs

The index rapidly fades Wednesday’s small gains and refocuses on the downside amidst the improvement in the appetite for the risk complex on Thursday.

Indeed, the dollar loses further traction and corrects lower after being rejected from the area of cycle tops near 109.30 earlier in the week (August 23). The move comes amidst marginal weakness in US yields as market participants get ready for the start of the Jackson Hole Symposium later in the day.

In the meantime, investors are expected to closely follow Chief Powell’s speech on Friday against the backdrop of rising speculation of a 75 bps rate hike at the Fed’s September gathering. On the latter, CME Group’s FedWatch Tool now sees the probability of such a scenario at nearly 60% (from around 40% a week ago).

Data wise in the US, another revision of the Q2 GDP Growth Rate is due later seconded by usual Initial Claims for the week ended on August 20.

What to look for around USD

The resumption of the risk-on mood among investors drags the dollar from the recent test of yearly peaks north of the 109.00 barrier.

Bolstering the dollar’s strength appears the firm conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

DXY, in the meantime, is poised to suffer some extra volatility amidst investors’ repricing of the next move by the Federal Reserve, namely a 50 bps or 75 bps hike in September.

Looking at the macro scenario, the greenback 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: Jackson Hole Symposium, Advanced Q2 GDP Growth Rate, Initial Claims (Thursday) - Jackson Hole Symposium, PCE, Personal Income, Personal Spending, Fed Powell, Final Consumer Sentiment (Friday) - Jackson Hole Symposium (Saturday).

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.

US Dollar Index relevant levels

Now, the index is retreating 0.44% at 108.13 and faces the next support at 107.99 (weekly low August 25) seconded by 106.21 (55-day SMA) and then 104.63 (monthly low August 10). On the upside, a break above 109.29 (2022 high July 15) would aim for 109.77 (monthly high September 2002) and then 110.00 (round level).