US Dollar hits home run as Fed remains hawkish

• US Dollar price action is mixed this Thursday after a firm three-day rally. 
• Markets were caught by surprise from a hawkish FOMC minutes publication. 
• The US Dollar Index consolidates near the monthly high. 

The US Dollar (USD) is in good shape again this week and is holding cards to close this week again in the green. Markets added some more strength to the Greenback on Wednesday after the publication of the US Federal Reserve (Fed) Minutes from its latest interest-rate increase. Markets were caught by surprise as the minutes showed plenty of members in the FOMC are still seeing upside risks for inflation and consider that more needs to be done (more hikes or rates steady for longer) in order to keep inflation under control. 

A few second-tier data points on Thursday could possibly let off some steam from this US Dollar rally. The weekly Jobless Claims could be a game changer as an uptick in unemployment could twist the arm of the Fed and might rather need some easing of the current monetary policy. The Philadelphia Fed Manufacturing Survey is due as well and could confirm current sentiment. 

Daily digest: US Dollar taking a breather

• Main headlines this morning are about the US Federal Reserve Minutes from its latest rate decision. The committee sees risk of inflation picking up again and more monetary tightening is needed, a stance that surprised markets. 
• Jobless claims are to be published at 12:30 GMT: Initial claims are expected to decline from 248K to 240K, while continuing claims are expected to jump from 1.684M to 1.7M. 
• The Philadelphia Fed Manufacturing Survey for August is due as well at 12:30 GMT. Market expectations are still for a contraction, though less firm compared with the previous month. The index is expected to rise slightly from -13.5 to -10.
• The US Treasury will tap the market for a 4-week bill auction.
• Another red day again this Thursday in equity markets. Investors are starting to realise that several major central banks are not done hiking interest rates, which means more bearish pressure on equities and growth. Still,  losses seem to be contained and markets could still flip to the green. 
• The CME Group FedWatch Tool shows that markets are pricing in an 86.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. 
• The benchmark 10-year US Treasury bond yield trades at 4.28%, jumping significantly on the back of the Fed Minutes. The whole yield curve got plotted higher on the back of the statement. 

US Dollar Index technical analysis: hold the floor

The US Dollar is taking a small pause at the monthly high in the US Dollar Index (DXY). The Greenback itself is printing overall monthly highs in most major crosses, and even a 6-month high against a few. The Commonwealth and Scandinavian currencies are the biggest losers these past few days. 

On the upside, 104.00 is the topside level to head to. The high of July at 103.57 is vital and needs to get a daily close above in order for the DXY to eke out more monthly gains. Should this US Dollar strength persist for the last part of this year, May’s peak at 104.70 could become reality again.   

On the downside, several floors are likely to prevent a steep decline in the DXY. The first one is the 200-day Simple Moving Average (SMA) at 103.26. Passing below the 103.00 big figure, some room opens up for a turbulent drop lower. However, around 102.34 both the 55-day and the 100-day SMA are awaiting to catch any falling knives. 

What is US Dollar Index (DXY)?

The US Dollar Index, also known as DXY or USDX, is a benchmark index that was established by the US Federal Reserve in 1973. DXY is widely used as a tool measuring the US Dollar (USD) value in global markets. The index is calculated by measuring the US Dollar’s performance against a basket of six foreign currencies, the Euro, the Japanese Yen (JPY), Swedish Krona (SEK), the British Pound (GBP), the Swiss Franc (CHF) and the Canadian Dollar (CAD).

With 57.6%, the Euro has the biggest weight in the index followed by the JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), and CHF (3.6%). Hence, a sharp decline in the EUR/USD pair could help the US Dollar Index rise even if the US Dollar weakens against some of the other currencies in the basket.