U.S. dollar index likely to consolidate around 93 for now, later head for 94 in wake of June FOMC policy meet: Scotiabank

The United States dollar index is expected to consolidate around 93 for now and then head for 94 before long in the run-up to the June 12-13 FOMC meeting. US inflation will continue picking up steam with the 10-year UST yield to climb above 3 percent again amid elevated oil prices, undermining EM Asian currencies afterward, according to the latest research report from Scotiabank.

A pullback in the DXY index was attributable to a weaker-than-expected US April CPI inflation. The US CPI increased 0.2 percent m/m in April, less than market expectations of a 0.3 percent gain. In the 12 months through April, the CPI increased 2.5 percent, the largest gain since February 2017, after rising 2.4 percent y/y in March.

Core CPI, which excludes food and energy components, edged up 0.1 percent m/m in April versus consensus forecasts of 0.2 percent, slower than the previous two months. The smaller-than-expected increase in US consumer prices is not enough to derail market expectations of a June rate hike by the Federal Reserve.

"When approaching the ECB’s July monetary policy meeting, however, the EUR is expected to recoup its losses and rally on the prospect of the ECB’s tapering, weighing on the DXY index at that time," the report added.

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