The US Dollar Index (DXY) is struggling near-term as markets price out the Ukraine war premium. Once the dust settles the USD’s unmatched yield credentials and a fiercely hawkish Federal Reserve should deliver sustained DXY tailwinds, according to economists at Westpac.

USD upside potential remains in scope 

“Once the dust settles USD’s unmatched yield credentials should come to the fore. Admittedly recent days have seen some minor erosion of the USD’s yield support, but USD has yet to fully capitalise on the broader surge in yield support that has unfolded this year.” 

“DXY could test yet lower levels if momentum toward de-escalation in Ukraine continues, but sustained weakness beyond 97.00 unlikely to develop with the Fed sticking resolutely to a hawkish path.” 

“DXY 100+ on the cards in coming weeks.”