The US Dollar Index (DXY) briefly reached a week's high but receded again midway through the New York session. Here's the background.

The US Dollar rate is looking to strengthen ahead of a series of economic data releases tomorrow. Unfortunately, the greenback still lacks catalysts. The US Dollar Index (DXY) briefly reached a week high of 104.24 but receded to 104.00 by the mid-New York session on Wednesday (28/February).

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Brad Bechtel, Global Head of FX at Jefferies, revealed that market volatility has increased in today's trading. He attributed the phenomenon to month-end fund flows and "hedging ahead of upcoming inflation data from the US and EU".

Reuters also reported that the volatility indicator for the Euro three-month options contract against the US Dollar has reached 6.01, its highest level since February 15.

Market participants may be preparing to recalculate interest rate cut expectations for the Federal Reserve and other major central banks in line with the latest inflation report. The key inflation reference for the Fed - the Core PCE Price Index - will be released tomorrow, as will German, French, and Spanish consumer inflation data. The overall Eurozone consumer inflation report will be announced on Friday.

"There is more of a chance that disinflation is underway in the Euro Area, so that might open the door for the ECB to make an early rate cut," said Mohamad Al-Saraf, interest rate and FX strategist at Danske Bank, "We think if inflation in the US is stiffer than in the Euro Area, then the dollar should be strong."

EUR/USD is currently confined within a limited range between 1.0800-1.0850. As stated by several experts earlier, the bias of this most popular forex duo is neutral as long as there are no signs of improvement in the Euro Area economy.