- DXY rises and flirts with the 96.00 barrier.
- US headline CPI rose 7.5% year-on-year in January.
- Initial US jobless claims increased by 223,000 weekly.
The US dollar index (DXY), which tracks the dollar against a group of its main competitors, jumps to new highs at the limits of the 96.00 area on Thursday.
US Dollar Index Strengthens After Highest CPI in 4 Decades
The index rose rapidly to multi-day highs after US inflation figures rose at the fastest pace in 40 years, at 7.5% in January. Along the same lines, core prices -excluding energy and food costs- rose 6.0% in the last twelve months.
The strong CPI numbers immediately translated into further upside in US yields across the curve, where the benchmark 10-year note tested, albeit briefly, the psychological 2.00% level.
Other results from the US economic calendar showed that initial jobless claims also beat expectations after rising 223,000 in the week to February 5.
The move higher in US yields responded to now-growing speculation of a possible 50bp interest rate hike at the FOMC event in March. That said, and according to CME Group’s FedWatch tool, the probability of such a rally next month is now just over 50% (up from 24% on Feb 9).
What to look for around USD
Higher-than-expected US inflation figures gave the dollar additional oxygen and propelled the DXY back towards the 96.00 zone. However, the extent and duration of this improvement in the dollar remains to be seen, as market participants have already priced in much of the current high inflation narrative, as well as the (now higher) likelihood of a rate hike. 50 bps by the Federal Reserve (instead of the more conventional 25 bps move). Looking at the long term, and while the constructive outlook for the dollar appears to be well established at the moment, the recent aggressive messages from the BoE and the ECB have the potential to undermine the expected dollar rally in the coming months.
Technical levels
Now the index is gaining 0.26% at 95.80 and a break above 96.00 (weekly high Feb 10) would open the door to 97.44 (high Jan 28 2022) and finally 97.80 (high Jun 30). of 2020). On the other hand, the next downside barrier emerges at 95.28 (100-day SMA), followed by 95.13 (weekly low Feb 4) and then 94.62 (low Jan 14, 2022).
Source: Fx Street
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