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US Dollar Index aims to surpass 104.40 as anxiety soars ahead of FOMC minutes

  • The US Dollar Index is looking to surpass the 104.40 hurdle amid negative market sentiment.
  • Investors are expecting cues of hawkish policy guidance for CY2023 in FOMC minutes.
  • The release of the US ISM Manufacturing PMI is expected to bring a power-pack action in the US Dollar.

The US Dollar Index (DXY) is showing signs of volatility contraction around the critical hurdle of 104.40 in the Asian session. The USD Index is likely to escalate its upside journey further as negative market sentiment ahead of the Federal Open Market Committee (FOMC) minutes and the United States ISM Manufacturing PMI data has improved the safe-haven’s appeal.

S&P500 continued its subdued performance on Tuesday as investors expect a hawkish policy outlook from FOMC minutes. The return on 10-year US Treasury bonds dropped to 3.76%.

Hawkish policy outlook expected from FOMC minutes

Investors are getting precautionary as the tight labor market in the United States could make the inflationary pressures more stubborn ahead. Rising demand for labor would be compensated by higher wage growth that could propel the price index further. Things would get clear after the release of the FOMC minutes, which will provide a monetary policy outlook for CY2022. Apart from that, a detailed explanation behind the 50 basis points (bps) interest rate hike by Fed chair Jerome Powell in December’s meeting and a wide statement on economic prospects will be of utmost importance.

US ISM Manufacturing PMI in focus

This week, the release of the FOMC minutes will be the key trigger, but before that, investors will focus on the release of the US ISM Manufacturing PMI, which is scheduled for Wednesday. The economic data is likely to decline to at 48.5 vs. the former release of 49.0. A drop in investment decisions and expansion plans in current capacity due to interest rates by the Fed is impacting the volume of manufacturing activities. Also, a decline in retail demand has trimmed supply from factory gates.

Apart from the Manufacturing PMI, the catalyst that will impact the US Dollar is the New Orders Index, which is expected to improve to 48.1 vs. the former release of 47.2.

 

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