• The Nasdaq 100, the S&P 500, and the Dow Jones registered losses between 0.77% and 2% due to a risk-off impulse that bolstered the US Dollar.
• Last week’s US economic data supported some Fed officials’ calls for lifting rates by 25 bps on Wednesday.
• A busy US economic calendar will feature Fed’s decision, PMIs, and the Nonfarm Payrolls report.

The US Dollar Index (DXY), a measure of the greenback’s value against a basket of six currencies, continues to recover and prints gains for three straight days, finishing Monday’s session with gains of 0.30% amidst risk aversion. At the time of writing, the DXY exchanges hand at 102.224.

US Dollar appreciates the courtesy of risk-off impulse

Wall Street finished with hefty losses, led by the Nasdaq 100, tumbling almost 2%. The S&P 500 and the Dow Jones slashed 1.30% and 0.77% of their value as traders prepared for the US Federal Reserve Open Market Committee (FOMC) decision on Wednesday. Hence, a busy US economic calendar was one of the main reasons for the US Dollar (USD) to appreciate against most G8 currencies.

Data from the previous week, dominated by the Q4 Advanced GDP release, indicated a robust economy with a growth rate of 2.9%, exceeding predictions of 2.6% QoQ. Nevertheless, the pace was slower than the previous quarter’s 3.2%, as confirmed by the US Department of Commerce. Also, the release of the US Core Personal Consumption Expenditures (PCE), the Federal Reserve’s preferred measure of inflation, came within expectations and below November’s 4.7% YoY data, indicating inflation has declined for four consecutive months. Therefore, some Fed officials advocated for a slower pace of interest rate increases but stressed that no reductions are anticipated for 2023.

Reflection of the aforementioned is US Treasury bond yields, precisely the US 10-year benchmark note rate, finished Monday with gains of three and a half basis points (bps). Up at 3.542%, underpinned the greenback.

In the meantime, the CME FedWatcth Tool, odds for a 25 bps rate hike by the Fed stand at 97.6%, above last Friday’s 99% chances, though it’s priced in by the markets.

What to watch?

Ahead of the week, the US economic calendar will feature the Conference Board (CB) Consumer Confidence, alongside the S&P Global and ISM Manufacturing PMI readings for January, ahead of the Fed’s decision on Wednesday. On Thursday, Initial Jobless Claims and the ADP report, and the US Nonfarm Payrolls report on Friday.

US Dollar Index Key Technical Levels