US Dollar Index faces barricades around 104.70 on higher recession fears, US PMI in focus

  • The DXY is seeing hurdles around 104.70 as a recession looks likely on the hawkish Fed.
  • The US economy could return to an inflation rate of 2% within two years.
  • An underperformance is expected from the US economy on the PMI front this week.

The US Dollar Index (DXY) is down modestly during the Asian session on the likelihood of a recession in the US economy. The DXY has detected barricades around 104.70 and is likely to extend losses after slipping below critical support at 104.60. After a move higher towards 105.10 on Friday, the asset saw a slight correction to near 104.60, which should add losses in case of a breach.

Fed Mester sees inflation at 2% in two years

Cleveland Federal Reserve (Fed) Chair Loretta Mester in an interview with CBS News on Sunday said it would take at least two years to get inflation close to 2%. In addition, a slowdown in growth targets is expected but does not predict a recessionary situation. The Fed policymaker is also forecasting a consecutive 75 basis point (bp) rate hike in July monetary policy. A wave of big interest rate hikes could push the jobless rate above 4%, but the Fed is pledging to do “whatever it takes” to fix the inflation mess.

Downward forecast for the US PMI

This week, US Purchasing Managers’ Index (PMI) data from IHS Markit will remain in focus. Economic data is due Thursday and vulnerable performance is expected from the data. The composite PMI is slightly higher at 53.5 from the previous print of 53.4. The bifurcation of the composite PMI between industrials and services dictates a severe underperformance. The Services PMI is seen to be extremely lower at 49.1 from the previous print of 53.2. While the manufacturing PMI is expected to slide to 54.7 from the previous figure of 55.7.

Key figures this week: Existing Home Sales, Initial Jobless Claims, S&P Global PMI, Bank Stress Test Information, Michigan Consumer Sentiment Index (CSI), and New Home Sales.

The big events this week: People’s Bank of China (PBOC) Interest Rate Decision, Reserve Bank of Australia (RBA) Minutes, Bank of Japan (BOJ) Minutes, Leaders’ Summit European Union (EU).

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