US Dollar Index recedes from weekly highs near 110.00, focus on data

• The index comes under selling pressure post-CPI tops.
• A full point interest rate hike by the Fed remains well on the cards.
• Markets’ attention will be on the release of Producer Prices.

The greenback, in terms of the US Dollar Index (DXY), comes under some tepid downside pressure after hitting weekly highs around 110.00 in the previous session.

US Dollar Index now looks to the docket

After climbing to 2-day highs just beyond 110.00 the figure on Tuesday, the index now surrenders a small part of those gains and returns to the 109.50 region, where decent contention appears to have emerged.

The corrective downside in the dollar comes despite the continuation of the march north in US yields across the curve, where the short end navigates levels last seen in November 2007 around 3.80%.

This bounce in yields appear underpinned by rising speculation of a probable 100 bps rate hike by the Federal Reserve at the September 21 meeting. According to CME Group’s FedWatch Tool, the probability of such a raise is close to 35%.

In the US data space, Producer Prices for the month of August will take centre stage seconded by the usual MBA Mortgage Applications.

What to look for around USD

The index rebounded sharply following higher-than-expected US inflation figures during August, hitting once again the 110.00 neighbourhood.

Bolstering the dollar’s underlying positive stance appears the firmer 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 reinforced by Chair Powell’s speech at the Jackson Hole Symposium.

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

Key events in the US this week: MBA Mortgage Applications, Producer Prices (Wednesday) – Retail Sales, Initial Claims, Philly Fed Manufacturing Index, Industrial Production, Business Inventories (Thursday) – Flash Michigan Consumer Sentiment, TIC Flows (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 0.14% at 109.66 and faces the next support at 107.68 (monthly low September 13) followed by 107.58 (weekly low August 26) and finally 107.43 (55-day SMA). On the other hand, a break above 110.01 (weekly high September 13) would expose 110.78 (2022 high September 7) and then 111.90 (weekly high September 6 2002).