USD Index appears bid near 101.50 ahead of PPI, weekly Claims

• The index resumes the upside following Wednesday’s drop.
• Bets on a Fed’s pause in June continue to rise.
• Producer Prices, weekly Initial Claims next on tap in the docket.

The greenback, in terms of the USD Index (DXY), picks up mild upside traction and revisits the 101.50 region on Thursday.

USD Index remains focused on data

The index maintains its weekly consolidative mood well in place in the lower end of the range and with solid support around the 101.00 zone for the time being.

The current price action in the US Dollar continues to track expectations of an impasse in the Fed’s tightening cycle as soon as at the June 14 meeting. On this, CME Group’s FedWatch Tool sees the probability of such scenario at nearly 94%.

The latest US CPI figures also reinforces the above amidst calls from some Fed’s policy makers to remain in the current restrictive territory for longer.

Later in the US data space, the inflation will remain in the centre of the debate in light of the release of Producer Prices for the month of April seconded by usual weekly Claims and the speech by FOMC’s C. Waller (permanent voter, hawk).

What to look for around USD

The index keeps the trade around the 101.50 zone against the backdrop of the broad-based absence of direction in the global markets.

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: 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 up 0.03% at 101.44 and the break above 101.83 (weekly high May 9) would open the door to 102.40 (monthly high May 2) and then 102.80 (weekly high April 10). On the other hand, initial contention emerges at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level).