US Dollar Index remains capped below 105.00, focus on US data, Fed’s Powell speech

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  • The US Dollar Index (DXY) loses ground around 104.75 after retracing from the weekly top of 105.10 on Wednesday. 
  • Fed’s Mester said she expects rate cuts this year but ruled out the next policy meeting in May.
  • The US February JOLTS Job Openings rose to 8.756M in February against 8.748M prior, better than estimated. 
  • Investors await the Fed’s Powell speech for fresh catalysts. 

The US Dollar Index (DXY) trades in negative territory for the second consecutive day near 104.75 during the early European session on Wednesday. The DXY has retreated from the weekly top of 105.10 following the dovish comments from Federal Reserve (Fed) policymakers on Tuesday. The attention will shift to the US ADP Employment Change and the ISM Services PMI, due on Wednesday.

On Tuesday, Cleveland Fed President Loretta Mester said that she expects the US central bank to cut rates this year. Mester noted that the June policy meeting is possible if the data allows it. Meanwhile, San Francisco Fed President Mary Daly stated that three rate cuts this year are a “very reasonable baseline”. However, she acknowledged that the labor market remains strong and growth is continuing. So there’s no urgency to adjust the rate. Financial markets are now pricing in about a 65% odds of a rate cut by June, down from about 70% after the Fed’s March meeting, according to the CME FedWatch Tool. 

Data released from the US Bureau of Labor Statistics on Tuesday showed that February JOLTS Job Openings rose to 8.756M in February from a downwardly revised 8.748M in the previous month, better than market expectations. Additionally, Factory Orders improved to 1.4% MoM in February from a 3.8% decline in the previous reading. 

On the other hand, the rising geopolitical tensions in the Middle East and Russia-Ukraine might boost safe-haven assets, benefiting the US Dollar. On Monday, warplanes attacked a building inside Iran’s consulate complex in Syria, and some of the most senior members of Iran’s Revolutionary Guard were killed. Additionally, there are reports of new attacks on commercial ships in the Red Sea.

Investors will also monitor the Fed’s Powell speech later on Wednesday, which might offer some hints about the monetary policy and interest rate outlook. In case Fed’s Powell delivers some hawkish comments, this could lift the Greenback against its rivals in the near term.