The US dollar index (DXY) made a spectacular comeback as investors assess their bets of the pace of Federal Reserve rate hikes. It jumped to a high of $104.53, the highest level since January 6, which was ~3.52% above the lowest point this year.
Hawkish Fed speak
The main catalyst for the performance of the US dollar index is that investors are assessing their outlook of the Federal Reserve. After the initial inflation report in January, most investors believed that the Fed would start pivoting this year. And it did this month when it hiked rates by 0.25%, the smallest increase in months.
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This week was the turning point for most traders after the US published important economic data. Earlier this month, data from the US showed that the American economy added over 500k jobs while the unemployment rate dropped to 3.4%, the lowest level in five decades.
Economic numbers released this week showed that the headline and core inflation rates jumped on a month-on-month basis in January. They remained at an elevated level on a year-on-year basis. And on Wednesday, the US published strong retail sales numbers.
Therefore, many Fed officials have supported moves to continue tightening in the coming months. In a statement last week, Jerome Powell said that the strong labor market made it difficult to fight inflation. On Thursday, officials like Loretta Mester and James Bullard supported a 0.50% hike in March. James Bullard said:
“My overall judgment is it will be a long battle against inflation, and we’ll probably have to continue to show inflation-fighting resolve as we go through 2023.”
Fed’s Thomas Barkin and Elizabeth Barkin, who are well-known hawks are set to make their hawkish pitches on Friday. In a report, analysts at ING wrote:
“We see a scenario where DXY continues to edge up to 105.00, with outside risk this quarter to strong resistance at 106.50 (about 1.8% above current levels), which may then prove the best dollar levels of the year.”
US dollar index forecast
The King Dollar is back. On the 4H chart, it has managed to cross the important hurdle at $103.96, the highest point on February 7. The index has also moved above all moving averages while momentum oscillators are rising. Therefore, I think this bullish momentum will continue ahead of next week’s Federal Reserve minutes. The key reference level to watch will be at $105.60.
Source: https://invezz.com/news/2023/02/17/dxy-us-dollar-index-could-surge-to-106-50-ing/