Image Source: Pixabay

The dollar index rose by about 0.3% and trades around $101.42 during the New York trading session on Tuesday, following gains of about 0.15% in the prior session. Investors are anxiously awaiting the inflation report due on Wednesday to determine the future direction of the greenback.

Data from Monday indicated that credit conditions in the US have tightened, which is attributed to the elevated interest rates rather than the banking turmoil. This has provided support for the dollar while equities and commodities have been under pressure. Gold, on the other hand, has surged due to recession fears as it is seen as a safe-haven asset.

Last week, the Fed increased rates by 25 bps and hinted at a potential pause in the tightening cycle. The duration of the pause will depend on the outcome of the inflation report. A longer pause could be supportive for the dollar, while hints of cuts could push the dollar lower.

The 12-month inflation outlook has decreased from 4.7% to 4.4%, which could be seen as negative for the dollar.

The dollar is currently trading in a tight, balanced price range as traders watch for economic data to determine the policy path. The lower extreme of the Year’s developing value sees selling, while any hawkish remarks could lead to a short squeeze towards the VWAP. Core sellers may continue to add to their positions around the upper extreme of the Quarter.

In summary, the dollar is currently under pressure as investors wait for the inflation report, which will determine the monetary policy outlook. The tightening credit conditions and elevated interest rates have provided support for the dollar, while gold has surged due to recession fears. The dollar is trading in a balanced range with rotational scenarios likely to occur depending on the policy path and economic data.

More By This Author:

US Stock Market Pressured As Investors Await Inflation Report
German Industrial Production Unexpectedly Drops In March
US Stock Futures Drop On Fed Rate Hike And Banking Sector Concerns