US Dollar Index defends rebound from two-week low at 107.00 with eyes on ECB policy

US Dollar Index (DXY) fluctuates about 107.05 after rebounding from a two-week low the day before. In doing so, the dollar index reflects market uncertainty ahead of a crucial European Central Bank monetary policy meeting (ECB). The DXY saw its first daily increase in four days the day before yesterday.

The rise of the DXY might be attributed to market worries of a European recession and high inflation statistics from the United Kingdom and Canada. In addition to Sino-American tensions and China's covid troubles, the Sino-American tensions and China's covid woes bolstered the US dollar's safe-haven demand.

According to Reuters, Russian President Vladimir Putin stated that it remains to be seen in what condition the Nord Stream 1 equipment will return after repair. As reported by Reuters, European Commission President Ursula von der Leyen stated on Wednesday that a complete cutoff of Russian gas was a plausible option. It should be noted that the International Monetary Fund (IMF) may have lowered its growth projections for Germany due to gas price concerns. Consequently, the IMF reduced its growth projections for Germany to 1.2% for 2002 and 0.8% for 2023. In its earlier prediction, the IMF anticipated that the German economy would expand by 2% in both years. In addition to the IMF, the Asian Development Bank (ADB) has reduced its growth prediction for developing Asia to 4.6% for 2022 from 5.2% before.

Italy's political concerns also signaled further suffering for the bloc and for the markets. As a result, Prime Minister Mario Draghi won a vote of confidence, but as three main cotillion parties boycotted the vote, Mr. Draghi may quit and call for early elections.

Wall Street finished with reduced gains, reflecting the tone, while US 10-year Treasury rates stopped a two-day advance at about 3.03 percent. In light of this, intraday S&P 500 Futures decline 0.25 percent to 3,952 as of press time.

Moving forward, the US Weekly Jobless Claims and Philadelphia Fed Manufacturing Survey for July may provide DXY traders some entertainment. However, the ECB's decision will get a great deal of attention, since markets anticipate a larger rate hike than the 0.25 percent increase suggested the day before. Consequently, ECB policymakers must not only announce the 25 basis point rate hike, but should also do more to restore the trust of Euro bulls; otherwise, the US currency might prolong its recent rebound.