US Dollar Index struggle around 99.30 on elevated uncertainty over the extent of an interest rate hike

• The DXY is struggling around 99.30 in the absence of any potential trigger that could bring an impulsive wave.
• Any Chinese aid to Russia may heighten the risk-aversion theme in the market.
• Fed’s interest rate policy will be the mega event that investors will look upon.

The US dollar index (DXY) is failing to claim 100.00 despite the tailwinds of escalating geopolitical tensions between Russia and Ukraine, Covid-19 cases in China, and an aggressive hawkish stance from the Federal Reserve (Fed) on Wednesday.

Status of geopolitical tensions between Russia and Ukraine

Three rounds of peace talks between Moscow and Kyiv have failed to bring any pause in the military activities by the nations. However, a safety corridor for the Ukrainian civilians has helped them to escape to some extent. Meanwhile, a negative development has taken place as the US has claimed that Russia has requested China for military support in the three-week-long invasion of Ukraine. The US believes that China is aiming to bail out Russia from sanctions imposed by the Western leaders. In response to that China has denied any knowledge regarding the request from Russia.

An aggressive hawkish stance from the Fed

The US CPI has climbed at 7.9% in February against the prior figure of 7.5%, which has raised the odds of a 50-basis point (bps) interest rate hike from the Fed. It is worth noting that the figure of 7.9% is untouched by the galloping prices of oil. Fed Chair Jerome Powell in his testimony declared a 25 bps rate hike is more likely but doors for an aggressive tightening policy are still open.

Covid-19 cases in China

Where the world economy is getting back to normal after the prohibition of using masks, China is witnessing rising cases of Covid-19 recently. On Sunday, the country reported 3,100 new locally transmitted cases in a single day, and a lockdown was announced in Shenzhen city. In response to the rising cases of Covid-19, Toyota announced a suspension of production in China’s Changchun city due to COVID-19 shutdown measures while Foxconn halted output at its iPhone site in Shenzhen city.

Major events this week: Producer Price Index, New York Empire State Manufacturing Survey, Retail Sales, Interest Rate Decision (most important), Initial Jobless Claims, Industrial Production, and Existing Home Sales.

Eminent issues on the back boiler: Russia-Ukraine war, and Bank of England (BOE) & Bank of Japan (BOJ) monetary policy.