United States Dollar Index recovers to near 99.00 ahead of US PCE inflation data

The US Dollar Index (DXY) rebounded to a near 99.00 mark early Wednesday, despite continued risks, as traders weighed US Treasury Department's plans to double bond buyback operations. The Treasury aims to buy $4 billion worth of bonds in each operation, up from its current $2 billion cap. This move comes amid concerns over the national debt, now exceeding $40 trillion.

President Donald Trump's administration also announced a broader secondary sanctions program targeting entities and countries with business connections to Iran. This could drive safe-haven flows, supporting the US Dollar. However, expectations of a Federal Reserve (Fed) interest rate hike have diminished; markets now anticipate only a 38.4% chance of a 25 bps rise in September, down from 67% earlier this month.

The release of the US Personal Consumption Expenditures (PCE) Price Index later in the day will be a key focus. If Fed Chair Kevin Warsh hints at a hawkish stance during his upcoming Jackson Hole speech, the DXY may see further gains. Strategists at Scotiabank warn that the dollar's stability could prove fleeting without clearer signals from US policymakers about the fiscal consolidation plan and the Fed's reaction at Jackson Hole.

Currently, the DXY is trading just above the lower Bollinger band, with the Relative Strength Index (RSI) at 34.60, signaling downside pressure but near oversold levels. Resistance lies at the middle Bollinger band around 99.55 and the 100-day SMA at 99.70, while support is found at the lower Bollinger band at 98.65. The US Dollar's strength is primarily driven by monetary policy decisions by the Federal Reserve, which aims to control inflation and promote full employment.