United States Dollar Index extends recovery from two-month low; trades above 99.50
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, builds on the overnight goodish rebound from the 99.30 area, or the lowest level since June 5, and gains some follow-through traction on Tuesday.
The US Dollar Index (DXY) continues its recovery following a recent low, trading above the 99.50 mark. This comes after a solid overnight rebound from the 99.30 level, the lowest since June 5, and a fresh daily high in the early European session around 99.70. However, the bullish momentum is tempered by uncertainty surrounding the US Federal Reserve's policy direction.
Recent soft US inflation and weak consumer spending data have cast doubt on the Fed's immediate plans to raise interest rates. While investors remain cautious about inflation risks due to higher energy prices, which may push the Fed towards a more hawkish stance, analysts at OCBC argue that reduced expectations of further Fed tightening should keep the USD within a range and support carry trades.
The upcoming release of the FOMC Minutes on Wednesday will be closely watched for further clues about the Fed's interest rate trajectory, which will significantly impact the short-term movement of the DXY. Analysts highlight that oil prices, yields, and geopolitical factors are currently driving market volatility, but they believe that expectations of lower Fed tightening will help keep the USD rangebound.
In the meantime, the US-Iran standoff remains a significant geopolitical risk, lifting oil prices to a two-week high and bolstering the safe-haven status of the US Dollar. The uncertainty over the US-Iran relationship, coupled with the potential for a broader regional conflict, adds to the pressure on the DXY. Nonetheless, traders are advised to wait for strong follow-through buying before confirming the market bottom and positioning for any significant recovery.
Key economic data releases on Tuesday include Building Permits, Housing Starts, Pending Home Sales, and Industrial Production figures. These releases, along with comments from influential Federal Reserve officials, could provide additional support to the USD and create short-term trading opportunities later in the North American session.
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