USD Index drops to 4-week lows near 103.70

• The index comes under heavy selling pressure and breaches 104.00.
• US yields also extend the decline to multi-week lows.
• Markets’ attention remains on the release of US CPI on Tuesday.

The greenback, in terms of the USD Index (DXY), remains on the defensive and breaks below the 104.00 support for the first time since mid-February.

USD Index weaker ahead of US CPI

The index retreats for the third session in a row and breaches the 104.00 level at the beginning of the week, as investors continue to reprice the next interest rate hike by the Federal Reserve at the March 22 meeting.

Following Friday’s mixed results from Non-farm Payrolls, the greenback saw its decline gather extra steam amidst rising bets for a 25 bps rate raise, while the Silicon Valley Bank (SVB) crisis did not help the buck either.

Absent releases in the US data space on Monday, the focus of attention is expected to remain on the publication of inflation figures tracked by the CPI for the month of February, due on Tuesday.

What to look for around USD

The index accelerates its downside and revisits the sub-104.00 region for the first time after many weeks.

The latest results from the US jobs report continue to weigh on the greenback and collaborate with investors’ repricing of a 25 bps rate hike at the March gathering, all sponsoring the corrective decline in the USD Index (DXY) from last week’s 2023 highs in the boundaries of the 106.00 region.

So far, the index fully fades the post-Powell steep rebound against the backdrop of reinvigorated bets of a Fed’s pivot in the short-term horizon. However, the still elevated inflation and the resilience of the US economy continue to play against that view.

Key events in the US this week: Inflation Rate (Tuesday) – MBA Mortgage Applications, Producer Prices, Retail Sales, Business Inventories, NAHB Housing Market Index, TIC Flows (Wednesday) – Initial Jobless Claims, Housing Starts, Building Permits, Philly Fed Manufacturing Index (Thursday) – Industrial Production, Flash Michigan Consumer Sentiment, CB Leading Index (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Persistent narrative for a Fed’s tighter-for-longer stance. Terminal rates near 5.5%? Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.70% at 103.89 and the breakdown of 103.68 (monthly low March 13) would open the door to 103.51 (55-day SMA) and finally 102.58 (weekly low February 14). On the other hand, the next up-barrier aligns at 105.88 (2023 high March 8) seconded by 106.62 (200-day SMA) and then 107.19 (weekly high November 30 2022).