US Dollar Index extends the downside below 109.00

• The index regains downside traction and approaches 108.40.
• The dollar appears offered following Monday’s daily decline.
• CB’s Consumer Confidence, housing data, Fedspeak next on tap.

The US Dollar Index (DXY), which measures the greenback vs. a bundle of its main rival currencies, retreats modestly in the lower end of the range near 108.40 on turnaround Tuesday.

US Dollar Index looks to data, Fedspeak

The index adds to the pessimistic start of the week and revisits the 108.50/40 band on the back of further improvement in the sentiment surrounding the risk complex.

The resumption of the selling bias in the greenback comes amidst the bearish tone in US yields, while expectations for further tightening by the Federal Reserve remains well in place. On the latter, investors continue to favour a 75 bps rate raise at the September event, according to CME Group’s FedWatch Tool.

Later in the US docket, the Consumer Confidence gauged by the Conference Board will take centre stage seconded by the FHFA’s House Price Index and speeches by Richmond Fed T.Barkin (2024 voter, centrist) and NY Fed J.Williams (permanent voter, centrist).

What to look for around USD

The greenback comes under some downside pressure following Monday’s fresh cycle peaks around 109.50 when tracked by the US Dollar Index (DXY).

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. This view was recently reinforced by Chair Powell’s speech at the Jackson Hole Symposium.

Extra volatility in the dollar, however, should not be ruled out considering the ongoing debate around the size of the September’s interest rate hike by the Federal Reserve.

Looking at the more 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: FHFA’s House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, ADP Employment Change (Wednesday) – Initial Claims, Final Manufacturing PMI, ISM Manufacturing, Construction Spending (Thursday) – Nonfarm Payrolls, Unemployment Rate, Factory Orders (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 over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

US Dollar Index relevant levels

Now, the index is retreating 0.29% at 108.43 and faces the next contention at 107.58 (weekly low August 26) seconded by 106.42 (55-day SMA) and then 104.63 (monthly low August 10). On the flip side, a break above 109.47 (2022 high July 15) would aim for 109.77 (monthly high September 2002) and then 110.00 (round level).