• The index treads water near the 102.00 mark on Wednesday.
• The FOMC is largely anticipated to hike rates by 25 bps.
• Focus remains on Powell and potential futures steps by the Fed.

The greenback navigates a narrow range around the 102.00 zone when measured by the USD Index (DXY) ahead of the FOMC gathering later in the session.

USD Index remains focused on the Fed

The index trades within a tight range following Tuesday’s retracement, always around the 102.00 mark and amidst rising anxiousness among market participants in light of the imminent FOMC event.

While a 25 bps rate hike is widely expected, investors’ attention will also be on the subsequent press conference by Chief Powell and any hint regarding the next potential moves by the Fed, particularly a probable impasse in its normalization process (pivot).

Other than the FOMC gathering, it will be an interesting session data wise in the US economy, as MBA Mortgage Applications are due, seconded by the ISM Manufacturing, JOLTs Job Openings, the ADP report, final Manufacturing PMOI and Construction Spending.

What to look for around USD

The dollar gave away almost all of Tuesday’s gains and returned to its comfort zone around the 102.00 yardstick ahead of the Fed’s meeting later on Wednesday.

The idea of a probable pivot in the Fed’s policy continues to hover around the greenback and keeps the price action around the DXY somewhat subdued. This view, however, also comes in contrast to the hawkish message from the latest FOMC Minutes and recent comments from rate setters, all pointing to the need to advance to a more restrictive stance and stay there for longer, at the time when rates are seen climbing above the 5.0% mark.

On the latter, the tight labour market and the resilience of the economy are also seen supportive of the firm message from the Federal Reserve and the continuation of its hiking cycle.

Key events in the US this week: MBA Mortgage Applications, ADP Employment Change, Final Manufacturing PMI, ISM Manufacturing, Construction Spending, FOMC Interest Rate Decision (Wednesday) – Initial Jobless Claims, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Services PMI ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Prospects for extra rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.06% at 102.03 and the breach of 101.50 (2023 low January 26) would open the door to 101.29 (monthly low May 30 2022) and finally 100.00 (psychological level). On the upside, the immediate hurdle comes at the weekly high at 102.89 (January 18) followed by 105.63 (monthly high January 6) and then 106.47 (200-day SMA).