Fed Keeps Door Open to Further Hikes

The US Dollar continues to rebound into the middle of the week with firm buying through the European open on Wednesday. The driver behind the current uptick is the stream of hawkish Fed commentary we’ve heard this week. On Monday, Fed’s Kashkari shared his view that while progress had been made on inflation, it was too early to declare victory and further tightening might still be needed.

Inflation Still Key

Yesterday saw a string of other Fed members echoing those hawkish sentiments. Fed’s Goolsbee, Bowman and Logan were each heard signalling that while was headed in the right direction, it was too early to say whether the Fed was done and that it would be necessary to see further data before making a call. The takeaway from these comments is that the door remains open to further tightening, dependent on the path of inflation. If CPI continues lower, the Fed might well hold off further tightening altogether. However, if CPI is seen to be stalling at current levels or turning higher again, further tightening will be needed.

Powell On Deck

Looking ahead today, the main focus will be on Fed chairman Powell. If Powell is seen echoing these hawkish sentiments, USD is likely to continue higher near-term as traders price in a higher likelihood of a further Fed hike.

Technical Views

DXY

The correction lower in DXY has found strong support into the 104.95 level support. With this area holding, the focus is on a fresh turn higher and a challenge of the 107.57, a break of which will signal the continuation of the prior bull trend, putting focus on 109.18 next. Below 104.95, 103.48 is the next support to note.