USD Index: Bears meet decent contention near 102.00

• The index attempts a tepid rebound just above 102.00.
• Investors keep pricing in a 25 bps rate hike by the Fed in February.
• Advanced Michigan Consumer Sentiment only due later in the docket.

The greenback, when tracked by the USD Index (DXY), advances marginally on Friday following a marked drop to the 102.00 neighbourhood in the previous session.

USD Index remains under pressure in multi-month lows

Despite the mild bullish attempt ahead of the opening bell in the old continent on Friday, the index appears well under pressure, particularly after US inflation gave further signs of cooling down in the year to December (headline CPI +6.5%, Core CPI +5.7%).

Indeed, speculation around a potential pivot in the Fed’s monetary policy stance continues to run high and maintains the price action around the buck depressed for the time being.

Indeed, this view has gathered extra steam especially since the publication of the December Nonfarm Payrolls (+223K jobs) and it has magnified in the wake of the US inflation figures (released on Thursday). Against that, the probability of a 25 bps rate hike at the Fed’s February 1 meeting is now near 95%, always according to the FedWatch Tool by CME Group.

In the US data space, the flash prints of the Michigan Consumer Sentiment for the month of January will be the sole release later in the NA session.

What to look for around USD

The dollar remains under pressure and looks to rebound from post-US CPI lows near 102.00, an area last visited back in June 2022.

Another soft prints from US inflation figures in December prop up the idea of a probable pivot in the Fed’s policy in the next months, which also comes in contrast to the hawkish message from the latest FOMC Minutes and recent rate-setters, all pointing to the need to remain within a restrictive stance for longer, at the time when the likelihood any interest rate reduction in the current year remains near zero.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: Inflation Rate, Initial Jobless Claims, Monthly Budget Statement (Thursday) – Flash Michigan Consumer Sentiment (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 of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is gaining 0.03% at 102.28 and faces the next hurdle at 105.63 (monthly high January 6) followed by 106.39 (200-day SMA) and then 107.19 (weekly high November 30). On the other side, the breach of 102.07 (monthly low January 12) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level).