USD Index climbs to new cycle highs near 111.00 ahead of FOMC

• The index extends the upside to the vicinity of the 111.00 barrier.
• The Federal Reserve is expected to hike rates by 75 bps.
• Focus will be on Chief Powell’s presser and updated economic projections.

The buying pressure around the greenback remains well and sound and lifts the USD Index (DXY) to new tops around 110.90 on Wednesday, an area last traded back in June 2002.

USD Index focused on Fed, Powell

It was a matter of “when” rather than “if” the index could revisit/surpass the area of cycle peaks north of the 110.00 hurdle.

Indeed, firmer expectations of another ¾-point rate hike by the Fed later on Wednesday along with the perception of a hawkish message from Chief Powell and revised economic projections, all lends extra wings to the buck and propels the index to the proximity of the 111.00 barrier.

In addition, US yields lose some traction and appear vacillating near recent multi-year peaks when it comes to the short end and the belly of the curve.

Other than the FOMC event, usual MBA Mortgage Applications are due along with Existing Home Sales and the weekly report on US crude oil inventories by the EIA.

What to look for around USD

The dollar pushes higher and prints new peaks just shy of the 111.00 hurdle on FOMC-day.

Bolstering the dollar’s underlying positive stance appears the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market.

Looking at the more macro scenario, the greenback appears propped up by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: MBA Mortgage Applications, Existing Home Sales, FOMC Interest Rate decision, Powell press conference (Wednesday) – Initial Claims, CB Leading Index (Thursday) – Flash Manufacturing/Services PMIs, Powell speech (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation over a recession in the next months. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is advancing 0.51% at 110.75 and a breakout of 110.86 (2022 high September 21) would expose 111.00 (round level) and then 111.90 (weekly high September 6 2002). On the downside, the next contention emerges at 107.68 (monthly low September 13) followed by 107.58 (weekly low August 26) and finally 105.97 (100-day SMA).