US Dollar Index bulls near 109.30 on hawkish Fed indications preceding US NFP

US Dollar Index (DXY) remained higher around 109.20, following yesterday's advance, as traders begin the week comprising the US Nonfarm Payrolls (NFP) amid conflicting signals. Despite this, despite a lackluster Asian session, the hawkish Fed and recession concerns appear to keep purchasers optimistic.

In spite of this, the dollar index vs the six major currencies had a substantial increase on Friday after Fed Chairman Jerome Powell stated in his much-anticipated Jackson Hole speech, "Restoring price stability will require 'forceful' use of the central bank's powers." In addition, the policymaker noted that regaining price stability will likely necessitate keeping a restrictive stance for "some time."

Following him, the president of the Federal Reserve Bank of Cleveland, Loretta Mester, announced that she would make her decision over whether to support a third consecutive 75-basis point increase in interest rates next month on US inflation statistics and not the much watched employment report.

Notably, policymakers from both the US Federal Reserve (Fed) and the European Central Bank (ECB) were hawkish, which bolstered the US dollar's safe-haven demand, particularly when the markets feared a recession. According to Reuters, US Senator Elizabeth Warren expressed grave concern on Sunday that the Federal Reserve will tip the US economy into recession.

In the same vein, a study presented at the Jackson Hole Symposium concluded that central banks will fail to control inflation and could even increase price growth if governments do not implement more conservative budget measures. Francesco Bianchi of Johns Hopkins University and Leonardo Melosi of the Chicago Fed asserted, "If the monetary tightening is not accompanied by the anticipation of proper fiscal adjustments, the worsening of fiscal imbalances will lead to even greater inflationary pressure."

In addition, growing geopolitical tensions between the United States and China bolster the DXY. According to Reuters, China's military stated on Sunday that it was monitoring US Navy boats traveling through the Taiwan Strait, remaining on high alert and prepared to counter any provocation.

In terms of the data, the Fed's favored inflation gauge, the US Core Personal Consumption Expenses (PCE) Price Index, decreased to 4.6% in July from 4.8% in June and 4.7% in market projections. In addition, the University of Michigan Consumers Confidence Index was revised higher in August, with the final result coming in at 58.2 as opposed to the preliminary and predicted readings of 55.1 and 55.2.

In this context, Wall Street benchmarks fell by more than 3%, while 10-year US Treasury rates ended the week with modest gains around 3.04%. As of press time, the S&P 500 Futures follow Wall Street's decline of more than 1.0%.

Fedspeak and the US PMIs may occupy DXY watchers until Friday's US employment report for August. If the job data are stronger than anticipated, the dollar index could extend its recent ascent toward reclaiming the multi-year high.

Friday's obvious comeback from 108.60 and positive MACD signals suggest another effort by the DXY to surpass the 109.30 barrier. However, overbought RSI levels cast doubt on the dollar's upside potential.