USD Index remains bid and above the 104.00 zone

• The index clings to daily gains around the 104.00 hurdle.
• US yields resume the upside and prop up the dollar on Tuesday.
• Advanced PMIs are seen rebounding a tad in February.

The greenback, when measured by the USD Index (DXY), manages well to keep business around the 104.00 neighbourhood on Tuesday, up modestly for the day so far.

USD Index looks bid amidst higher yields

The index keeps the buying interest well in place in the wake of the opening bell in Wall St. on Tuesday, as US markets return to the usual activity following Monday’s holiday.

The move higher in US yields underpins the resumption of the uptrend in the dollar, while the somewhat offered stance in the risk complex also collaborates with the upside pressure in the buck.

In the US data space, the flash Manufacturing PMI is seen at 47.1 in February and 50.5 when it comes to the Services gauge, both prints surpassing estimates and higher than the January readings.

Later in the session, Existing Home Sales for the month of January are due followed by a 3-month/6-month Bill Auctions.

So far, market participants are expected to remain on the cautious side in light of the publication of the FOMC Minutes and the release of inflation figures measured by the PCE on Wednesday and Friday, respectively, all against the backdrop of the persistent broad debate between market expectations of the Fed’s next steps and the hawkish narrative from policy makers.

What to look for around USD

The dollar flirts once again with the key 104.00 zone amidst some tepid weakness in the risk complex as US traders resume the activity on Tuesday.

The probable pivot/impasse in the Fed’s normalization process narrative is expected to remain in the centre of the debate along with the hawkish message from Fed speakers, all after US inflation figures for the month of January showed consumer prices are still elevated, the labour market remains tight and the economy maintains its resilience.

The loss of traction in wage inflation – as per the latest US jobs report - however, seems to lend some support to the view that the Fed’s tightening cycle have started to impact on the still robust US labour markets somewhat.

Key events in the US this week: Flash Manufacturing/Services PMI, Existing Home Sales (Tuesday) – MAB Mortgage Applications, FOMC Minutes (Wednesday) – Advanced Q4 GDP Growth Rate, Initial Jobless Claims, Chicago Fed National Activity Index (Thursday) – PCE, Core PCE, Personal Income/Spending, Final Michigan Consumer Sentiment, New Home Sales (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Slower pace of interest rate hikes by the Federal Reserve vs. shrinking odds for 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 0.25% at 104.13 and faces the next hurdle at 104.66 (monthly high February 27) seconded by 105.63 (2023 high January 6) and then 106.44 (200-day SMA). On the other hand, the breach of 102.58 (weekly low February 14) would open the door to 100.82 (2023 low February 2) wand finally 100.00 (psychological level).