DXY holds ground near 105.70 below the six-month high, Investors await US data

• USD Index (DXY) hovers below the six-month high before the slew of US economic data.
• Investors turn cautious ahead of US Core PCE, awaiting further cues on US inflation scenarios.
• Fed’s hawkish stance could reinforce the Greenback’s strength.
• US Treasury yields peaked at multi-year highs, supporting the US Dollar (USD).

US Dollar Index (DXY), measuring the Greenback's value against six major currencies, hovers below a six-month high hit on Friday. The spot beat around 105.70 during the early trading hours of the European session on Monday.

The DXY is struggling to gain momentum, which could be attributed to the market caution ahead of the economic data releases from the United States (US).

Investors will closely monitor the US economic calendar, which includes significant data releases such as Consumer Confidence, Durable Goods Orders, Initial Jobless Claims, and Core Personal Consumption Expenditures (PCE), the Fed's preferred measure of inflation.

The annual figure for Core PCE is expected to decrease from 4.2% to 3.9%. These datasets will provide insights into the US economic situation, influencing the trading bets involving the Greenback.

US Treasury yields have surged to multi-year highs. The yield on the 10-year US Treasury note trades around 4.46% below the highest level since the year 2007. This substantial rise in yields could be contributing to the strength of the US Dollar (USD).

US Federal Reserve (Fed) conducted its sixth monetary policy meeting during the previous week. The US central bank opted to keep interest rates unchanged but made upward revisions to their projections for the Federal Funds Rate (FFR). For the year 2023, policymakers now anticipate the FFR to conclude at 5.60%, and for 2024, they raised their estimates from 4.6% to 5.1%.

Furthermore, comments from Boston Fed President Susan Collins and US Federal Reserve (Fed) Governor Michelle W. Bowman suggest that further interest rate tightening is possible, emphasizing the need for patience and more rate hikes to control inflation. Rising interest rates could potentially underpin the USD.

The Fed's determination to sustain elevated interest rates in order to bring inflation back to its 2% target has heightened expectations of at least one more 25-basis-point rate hike by the end of the year.

Furthermore, the Fed's "dot plot" now suggests only two rate hikes in 2024, a reduction from the previous projection of four rate hikes.