US Dollar Index aims to recapture 104.60 as odds of Fed’s hawkish guidance trim

  • Downside momentum is indicating that the DXY will re-visit its six-week low at 104.64.
  • The odds of a Fed rate hike will remain steady while the hawkish guidance will trim abruptly.
  • A meaningful decline in the US CPI has underpinned risk-sensitive assets.

The US dollar index (DXY) witnessed an intense sell-off on Wednesday after a downward shift in the US Consumer Price Index (CPI). The DXY fell like a house of cards as a significant slowdown in the price pressures trimmed the odds of a bumper rate hike by the Federal Reserve (Fed) in its September monetary policy meeting. A downside break of the consolidation formed in a 106.00-106.80 range dragged the asset towards 104.64. A pullback move has been observed, however, the downside will remain intact.

Plain-Vanilla CPI skids 60 bps

The plain-vanilla US inflation landed at 8.5%, lower than the expectations and the prior release of 8.7% and 9.1% on an annual basis. A decent drop in the inflation rate on an annual basis led by a serious fall in oil prices in July has displayed a meaningful exhaustion signal to the market participants. No doubt, more rate hikes will be announced by the Federal Reserve (Fed), however, the long-term hawkish guidance will witness a serious dent.

Risk-on market mood to remain for a while

After a series of policy tightening measures by the Fed through raising interest rates and concluding the bond-purchase program, a sigh of relief is taken by Fed policymakers. A month with upbeat employment data and a significant drop in the price pressures is what investors were eyeing for the past few months to push liquidity into the risk-perceives assets. Going forward, the risk-on impulse will remain active for a tad longer period.

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