US Dollar Index Follows Yields Higher To Reclaim Monthly High Prior To Powell's Speech

The US Dollar Index (DXY) surges to 103.60 as buyers flex their muscles ahead of an important speech by Federal Reserve (Fed) Chairman Jerome Powell. By tracking positive US Treasury bond yields and hawkish Fed worries, the dollar's signal versus the six major currencies keeps DXY bulls happy.

However, statements by US Treasury Secretary Janet Yellen and Vice President Joe Biden help DXY bulls by delaying recession fears and bolstering hawkish wagers on the Fed's impending actions. In their respective remarks, both policymakers, however, minimized the probability of a U.S. recession. In response to favorable US data, traders increased their hawkish wagers on the Fed, which contributed to the dollar's strength.

Notably, last week's upbeat US employment, wage, and activity figures reignited optimism that the Federal Reserve still has work to do before it can welcome rate hawks and policy doves.

Recent discussions regarding Sino-American relations, especially after the United States shot down a Chinese balloon and postponed a diplomatic visit to Beijing, provided additional support for the DXY bulls the day before, along with fading recession fears and a buoyant US data-driven hawkish Fed bias. Recent comments by US Vice President Joe Biden appear reassuring, as he noted, "The balloon incident does not impair US-China relations."

Wall Street ended in the red as 10-year US Treasury bond yields extended Friday's rally, allowing the DXY to climb for a third consecutive day.

Aside from Fed Chair Jerome Powell's speech and US Vice President Joe Biden's State of the Union (SOTU) address, the US Dollar Index may move sideways in the near future. If Powell chooses to laud recent economic advances in the United States and reiterates his hawkish stance on monetary policy, the DXY might extend its gains.