Hawkish Fed Signals And Geopolitical Concerns Favor DXY Investors Near 104.50 On The Us Dollar Index

US Dollar Index (DXY) oscillates near 104.50, grinding higher near the weekly high, as greenback bulls applaud hawkish Federal Reserve (Fed) concerns amid geopolitical fears on Thursday morning. In doing so, the dollar index versus the six major currencies seeks new directions to extend the two-day uptrend, highlighting today's data that provides early indications of US inflation and output conditions.

Although US President Joe Biden believes that his Russian counterpart is not prepared to use nuclear weapons by withdrawing from an international treaty, the fears surrounding the Ukraine-Russia conflict are far from over, with the latest round of tensions between the West and China exacerbating the situation. The Wall Street Journal (WSJ) reported recently that the United States is contemplating releasing intelligence on China's potential arms transfer to Russia.

Previously, remarks by China's top diplomat Wang Yi and Russian President Putin weighed on sentiment and pushed the US Dollar Index higher (DXY). According to Reuters, Chinese diplomat Wang Yi met with Russian President Vladimir Putin on Wednesday and stated that China is willing to deepen strategic cooperation with Russia. The Chinese official added that pressure from outside nations will not affect their relations. Putin, meanwhile, emphasized the importance of cooperation with China and said he looks forward to Chinese President Xi Jinping's visit to Moscow.

On the other hand, hawkish Federal Reserve (Fed) Minutes and statements from Fed officials suggesting higher interest rates also support the demand for the US Dollar. According to the most recent Federal Open Market Committee (FOMC) Monetary Policy Meeting Minutes, all participants concurred that additional rate increases are required to reach the inflation target, while also favoring additional Fed balance sheet reductions.

According to Reuters, St. Louis Federal Reserve President James Bullard also stated that the Fed will need to raise interest rates above 5% to combat inflation. The policymaker also stated that he believes there are high chances they could beat inflation this year without causing a recession. In addition, John Williams, president of the Federal Reserve Bank of New York, emphasized the concerns supporting the Fed's higher interest rates by stating, per Reuters, "Fed is absolutely committed to getting inflation back to 2%."

It is worth noting, however, that a decline in US Treasury bond yields and a mixed performance of equities, amid expectations that economic slowdown concerns have been eliminated, appeared to have tested the US Dollar Index bulls. Nevertheless, the US 10-year and 2-year Treasury bond yields retreated from their three-month high as Wall Street closed with a mixed performance, whereas the S&P 500 Futures continue to be moderately bid as of late.

Looking ahead, the second estimates of the US Personal Consumption Expenditures (PCE) details for the fourth quarter (Q4) and the preliminary readings of the US Q4 Gross Domestic Product (GDP) will be crucial for new directions. Although the scheduled figures are likely to confirm the initial forecasts, any surprises will not be taken lightly and should therefore be observed carefully for unambiguous directions.