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DXY is still on the defensive in the sub-96.00 zone. US yields have fallen slightly from recent highs. According to the US Dollar Index, the dollar has extended Tuesday’s pullback to the area below the 96.00 yardstick so far on Wednesday (DXY). The release of the FOMC Minutes will be the main topic of discussion. The US Dollar Index is still trading below 96.00 ahead of the release of data and the FOMC meeting.

The index fell for the second session in a row and continues to test the 96.00 level, owing to persistent risk appetite and a knee-jerk in US yields, all ahead of the opening bell in Euroland midweek.

US yields are indeed under some mild downward pressure, but they remain near the upper end of the range, close to recent tops across the curve. 

The growing acceptance for greater appetite for riskier assets weighed on the dollar, forcing the DXY to retreat from recent highs. However, the current corrective downside is viewed as only temporary, as the buck’s positive stance is supported by the current elevated inflation narrative as well as the probability (now higher) of a 50 basis point rate hike by the Fed (rather than the more conventional 25 basis point move) at the March meeting.

Meanwhile, the dollar continues to suffer from positive news from the Russia-Ukraine front, albeit with rising caution, which has been sustaining the pick-up in the risk-on trade in recent hours. 

In the US calendar, the release of the FOMC Minutes will take centre stage later in the NA session, but Retail Sales and the weekly MBA Mortgage Applications will also garner attention. 

In the long run, while the positive outlook for the greenback appears to be in place for the time being, recent hawkish messages from the BoE and the ECB have the potential to undermine the dollar’s expected move higher in the coming months.