DXY inter-markets: buy the dip?

The greenback – gauged by the US Dollar Index – keeps the bearish note unchanged on Wednesday, fading part of Tuesday’s advance to the vicinity of 101.70 and trading in a cautious context ahead of the FOMC gathering due later in the NA session.

While a 25 bp seems a ‘done deal’ by now, markets’ attention will now be on the press conference by Chief J.Yellen and the updated forecast for economic growth and interest rates (the famous ‘dot plot’). Chair Yellen will surely emphasize the robust health of the US economy, which continues to flirt with ‘full employment’ levels and inflation on track to reach the Fed’s goal in the medium term. Furthermore, Yellen is also expected to confirm a gradual tightening of monetary conditions.

However, any hawkish tweak from today’s message by the Committee carries the potential to push the buck to resume its underlying bullish trend. It is worth mentioning the Fedspeak during February was supportive of further tightening by the Fed, while a couple of governors even hinted at the likeliness that the economy may need four rate hikes this year.

Yields in US money markets have been accompanying the up move in DXY, staying around YTD tops and limiting occasional pullbacks in the index.

All in all, it seems the table is set for a resumption of the USD rally unless the Committee strikes a dovish bias today, which at this point seems quite unlikely.