US Dollar Index sets to test 107.00 ahead of Fed commentary and key economic catalysts

• The USD Index is aiming to reclaim the round-level hurdle of 107.00 amid a risk-off mood.
• Fed Powell’s speech will provide cues about interest rate guidance for the December meeting.
• Wednesday’s New York session is expected to display fireworks ahead of various economic catalysts.

The US Dollar Index (DXY) has shifted its business above the critical hurdle of 106.80 in the Asian session. The USD Index is expected to hit the round-level resistance of 107.00 as the risk-aversion theme is in the spotlight. The risk impulse is extremely cautious ahead of the speech from Federal Reserve (Fed) chair Jerome Powell as he is expected to provide cues about a deceleration in the aggressive interest rate hike pace.

S&P500 remained subdued on Tuesday as investors are expected to make informed decision post the Fed Powell’s speech. Contrary, the 10-year US Treasury yields remained extremely firmer on the belief that the slowdown concept in the rate hike pace is still under observation and yet to be confirmed.

Fed Powell’s speech to chalk out interest rate guidance

Nervousness in the global markets is highly expected as the speech from Fed chair Jerome Powell will determine the further road to terminal rates. Most likely, the Fed chair is expected to deliver a ‘less-hawkish’ stance on interest rate guidance for December monetary policy meeting as the United States Consumer Price Index (CPI) has already shown meaningful signs of exhaustion. The headline CPI has already slipped to 7.7% from the peak of 9.1%, therefore, Fed policymakers discussed a slowdown in the rate hike pace to assess efforts yet made to contain price growth and to reduce financial risks.

Key economic catalysts

Wednesday’s New York session is expected to display fireworks in almost entire majors and related instruments as the United States economy will report US Automatic Data Processing (ADP) Employment, Gross Domestic Product (GDP), core Personal Consumption Expenditure (PCE), and Fed’s Beige Book.

As per the consensus, the annualized GDP and core PCE for the third quarter are expected to remain stable at 2.6% and 4.5% respectively. A slowdown in both catalysts would cement a downside shift in the rate hike extent for December’s interest rate decision.

On the labor market front, the consensus says an addition of 200k jobs in November vs. the prior release of 239k.

Apart from the economic catalysts, Fed’s Beige Book will provide the regional status of consumer spending, employment, and the extent of economic activities.