The central bank’s decision will set the tone for the greenback later in the week
The US dollar looks steady on Tuesday after a modest three-day slide. The greenback keeps holding close to six-month highs while US Treasury yield hovers around multi-year peaks in anticipation of the Fed decision that will set the tone for the greenback later in the week.
The central bank is not expected to change the fed funds rate from the current level of 5.25%-5.5%, so their rate and economic projections will be in focus after a stronger-than- expected inflation data for August. For the November meeting, markets are giving about one-third odds of a 25-basis-point hike.
The DXY is holding slightly above the 105.00 support zone, a decisive break below which would pave the way to deeper losses. In case of a bounce from the current levels, the market focus would shift back to March highs around 105.45 seen last week.
Should the Fed express a hawkish tone this week, the dollar may see another rally to fresh cyclical highs, also buoyed by a possible risk aversion across the financial markets. In case of a cautious rhetoric from Powell the buck would be disappointed and could see solid losses across the board.
In a wider picture, the USD index has settled well above the July lows registered below the 100.00 psychological level. However, the dollar is yet to attract more robust and sustainable demand in order to get back above the 110.00 figure last seen in November 2022.
Technically, the US currency looks ready to extend the ascent in the near term, with the immediate bullish target arriving at 105.50, followed by this year’s high of 105.88 seen in March. On the downside, the nearest significant support lies around the 103.50 region, followed by the 101.00 mark.