- The US Dollar Index is about to cross the 104.40 hurdle amid negative market sentiment.
- Investors expect clues to hawkish policy guidance for CY2023 in the FOMC minutes.
- The release of the US ISM manufacturing PMI is expected to bring strong action to the US dollar.
The US Dollar Index (DXY) shows signs of reducing volatility around 104.40, a key hurdle in the Asian session. USD Indexes Continue Upward Journey As Negative Market Sentiment Ahead Of Federal Open Market Committee (FOMC) Minutes And His ISM Manufacturing PMI Data In US Improves Safe Haven Appeal It may escalate further.
The S&P 500 continued Tuesday’s subdued performance as investors expected a hawkish policy outlook from the FOMC minutes. The 10-year Treasury bond return he fell to 3.76%.
Hawkish Policy Outlook Predicted from FOMC Minutes
Investors are becoming more cautious as a tightening US labor market could add to inflationary pressures. Rising demand for labor will be offset by higher wage growth, which could further push up the price index. Things will become clearer after the release of his FOMC minutes, which provide an outlook for monetary policy in 2022. Apart from that, Fed Chairman Jerome Powell’s detailed explanation behind his 50 basis point (bps) rate hike in December and broader statements on the economic outlook will be of paramount importance.
Focus on US ISM manufacturing PMI
The release of the FOMC minutes will be a key trigger for this week, but before that, investors will look to the US ISM manufacturing PMI release scheduled for Wednesday. Economic data may drop to 48.5 against his previous release of 49.0. The Federal Reserve’s decision to invest in current production capacity and lower expansion plans due to interest rates are impacting the volume of manufacturing activity. Declining retail demand also cut supply through the factory gates.
Aside from the manufacturing PMI, the catalyst that will affect the US dollar is the new orders index, which is expected to improve to 48.1 from 47.2 in the previous release.