US Dollar Index off multi-day lows, remains depressed near 94.00 mark

• The USD lost some additional ground for the third successive session on Tuesday.
• The Fed’s dovish outlook, sliding US bond yields acted as a headwind for the USD.
• The risk-off impulse in the markets helped limit losses for the safe-haven greenback.

The US dollar witnessed some selling for the third successive day and retreated further from YTD tops, touched in reaction to the upbeat US NFP report on Friday. The downward momentum dragged the USD Index to three-day lows, around the 93.85 region during the early European session, though lacked follow-through.

The Fed's dovish outlook, indicating that policymakers were in no rush to hike rates, continued acting as a headwind for the greenback. Apart from this, a fresh leg down in the US Treasury bond yields further undermined the USD. However, the risk-off impulse in the markets – as depicted by a generally softer tone around the equity markets – helped limit losses for the safe-haven buck.

Apart from this, speculations that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation further held back traders from placing fresh USD bearish bets. Hence, the market focus will remain glued to Wednesday's US consumer inflation figures for October, which will influence Fed rate hike expectations and provide a fresh directional impetus.

In the meantime, traders on Tuesday will take cues from the release of the US Producer Price Index (PPI) and Fed Chair Jerome Powell's remarks at an online conference later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment should influence the USD price dynamics and produce some meaningful trading opportunities in the FX markets.

Technical levels to watch