USD Index adds to the downside and challenges 101.00

• The index losses further ground and puts 101.00 to the test.
• Markets continue to digest Friday’s solid NFP figures.
• Wholesale Inventories next on tap in the docket.

The greenback remains on the downside and confronts the 101.00 region when measured by the USD Index (DXY) at the beginning of the week.

USD Index remains focused on inflation

The index adds to Friday’s losses and trades at shouting distance from the key 101.00 region on Monday, as market participants continue to digest another solid prints from Friday’s Nonfarm Payrolls, this time for the month of April (+230K).

In the meantime, US yields trade within a marginal range ahead of the opening bell in the old continent on Monday, while the German 10-year benchmark yields hover around 2.30%, up modestly for the day.

In the US data space, Wholesale Inventories for the month of March will be the sole release later in the NA docket.

What to look for around USD

The index trades close to the 101.00 zone in tandem with investors’ adjustment to the last NFP release.

The index seems to be facing downward pressure in light of the recent indication that the Fed will probably pause its normalization process in the near future. That said, the future direction of monetary policy will be determined by the performance of key fundamentals (employment and prices mainly).

Favouring an impasse by the Fed appears the persevering disinflation – despite consumer prices remain well above the target – incipient cracks in the labour market, the loss of momentum in the economy and rising uncertainty surrounding the US banking sector.

Key events in the US this week: Wholesale Inventories (Monday) -  MBA Mortgage Applications, Inflation Rate, Monthly Budget Statement (Wednesday) – Producer Prices, Jobless Claims (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is losing 0.21% at 101.06 and faces initial contention at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level). On the other hand, the break above 102.40 (monthly high May 2) would open the door to 102.80 (weekly high April 10) and then 103.05 (monthly high April 3).