US Dollar Index eyes three-week uptrend as Fed hawks ride on higher inflation expectations
- US Dollar Index reverses early-week pullback from monthly high.
- Fed officials, US Treasury Secretary Yellen highlight strong inflation to defend current policies.
- Receding fears of US-China tension, retreat in yields and light calendar challenge DXY traders.
- Multiple EU statistics, weekly US Jobless Claims may entertain traders.
US Dollar Index (DXY) holds onto the previous day’s recovery moves around 103.50 as bulls brace for the third consecutive weekly gains in a row amid hawkish comments from the US policymakers. It’s worth noting, however, that the lack of major data/events join mixed concerns surrounding the latest geopolitical tension between the US and China to probe the greenback’s gauge versus the six major currencies.
That said, Federal Reserve Governor Christopher Waller teased a long fight with a 2.0% inflation target by citing expectations of tighter monetary policy for longer than expected. On the same line, Governor Lisa Cook said that the central bank remains focused on restoring price stability, as inflation is still running too high. She added that they would need a restrictive monetary policy for some time.
Furthermore, New York Federal Reserve President John Williams said that the labor market is still very strong and noted that they have more work to do on rates, adding data will determine the path of rate hikes.
Elsewhere, ECB policymaker Klaas Knot said that headline inflation appears to have peaked but added that keeping the current pace of hikes into May could well be needed if underlying inflation does not materially abate.
It should be noted that US Treasury Secretary Janet Yellen also mentioned, ““While inflation remained elevated, there were encouraging signs that supply-demand mismatches were easing in many sectors of the economy.”
However, the former Fed Chair Yellen also mentioned that it was important to improve communications with Chinese counterparts on economic issues. On the same line were comments from US President Joe Biden who said,
Technical analysis
A daily closing beyond the 50-DMA hurdle of 103.50 becomes necessary for the US Dollar Index bull’s conviction.