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Concerns About The Federal Reserve's Tightening Monetary Policy Are Positive For The US Dollar Index (DXY)
At a seven-week peak, the US Dollar Index reverses its largest weekly gain since September 2022. Robust inflation-related data support hawkish Fed bias and propel DXY rise. Geopolitical concerns strengthen demand for the US Dollar as a safe haven. US PMIs and Durable Goods Orders are anticipated to provide a fresh impetus, and Fed discussions are crucial.
During Monday's Asian session, the US Dollar Index (DXY) maintains modest losses near 105.15 while consolidating recent gains at the highest levels since early January. In spite of this, the U.S. dollar index against six major currencies posted the largest weekly gain since September 2022, as well as a four-week uptrend, before retreating from the 2023 high reached in early January.
The DXY bulls applauded hawkish Fed wagers and geopolitical concerns surrounding China and Russia, while reviving the multi-day high. However, a dearth of significant data/events prompted the most recent pullback in the quote.
The term "ecosystem" refers to a group of people who work in the construction industry. The ardent Fed worries may be related to the robust US data, which primarily indicate strong inflationary pressure, as well as the optimistic comments from US Federal Reserve (Fed) officials.
Among US data, Friday's US Personal Consumption Expenditures (PCE) drew significant attention as the headline PCE Price Index rose to 5.4% YoY, compared to 5.3% previously and 4.8% market expectations. In addition, the Core PCE Price Index, the Fed's preferred inflation indicator, rose to 4.7% YoY, compared to 4.6% previously and analysts' expectations of 4.3%.
On the other hand, Cleveland Fed President Loretta Mester told CNBC on Friday that his funds' rate was above the median in December and that he still believes it should be somewhat above 5%. The official added that inflationary risks remained skewed to the upside. Following the lawsuit, Federal Reserve Bank of Boston President Susan Collins stated, "More rate increases are required to combat 'too high' inflation." In addition, Governor Philip Jefferson stated, "Wage growth in the United States is too high to be consistent with a timely and sustainable return to the Federal Reserve's 2% inflation target."
Elsewhere, German and European Union leaders criticized China's 12-point peace proposal, which weighed on market sentiment and pushed the US Dollar higher.
While portraying the mood, Wall Street benchmarks posted the biggest weekly fall in 2023 while the US two-year Treasury bond yields rose to the highest levels since early November 2022.
Looking ahead, this week's US ISM Manufacturing PMI, Services PMI, Durable Goods Orders, and China's official PMIs will be crucial for the market and DXY traders. Nonetheless, the absence of the US employment report and a light calendar for Fed watchers may enable the DXY to pare some of its recent gains.
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