US Dollar drops sharply on dovish Brainard comments
After failing to move above the 96 handle on Tuesday, the US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, came under a fresh selling pressure in the US afternoon following some dovish comments from the Board of Governors of the Federal Reserve member Lael Brainard. As of writing, the index is at 95.60, down 0.2% on the day.
Although Brainard said that the normalization of rates was well under way, he also urged the officials to move cautiously on rate hikes to help boost inflation back to target. Brainard further added that the pace, timing & approach of the balance sheet run off by major central banks may have spillover effects on the FX rates and financial conditions.
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On the other hand, a recent political turmoil in the U.S. is keeping investors away from the greenback after Donald Trump Jr.'s, son of US President Donald Trump, tweeted out an e-mail chain where he was offered sensitive information on Hillary Clinton that could assist the Trump campaign. According to Reuters, the U.S. Senate Intelligence Committee will be requesting documents from Donald Trump Jr.
The next significant catalyst for the greenback will come when the Federal Reserve Chairwoman Janet Yellen delivers her semi-annual testimony to lawmakers on Wednesday and Thursday. Investors will be looking for clues on the timing of the next rate hike and if Fed still sees the recent economic slowdown as being temporary.
Technical outlook
96 (psychological level) remains as a tough resistance for the index. Only a daily close above that level could allow could allow for a deeper correction towards 97.15 (Jun. 27 high) and 97.70 (May 30 high). On the downside, supports could be seen at 95 (psychological level), 94.40 (Sept. 8, 2016, low) and 93.70 (Jun. 24, 2016, low).
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