US Dollar Index: DXY retreats towards 105.00 as mixed US data prod Fed hawks, focus on US NFP

• US Dollar Index remains depressed after posting the biggest daily loss in a week.
• Cautious mood ahead of the US data, downbeat early signals for NFP weigh on DXY.
• Pullback in US Treasury bond yields, sluggish markets add strength to the US Dollar Index retreat.
• US employment report for February appears the key amid challenges for Fed hawks.

US Dollar Index (DXY) stays dicey around 105.30 amid the initial trading hours of the all-important Friday comprising the US jobs report for February. That said, the greenback’s gauge versus the six major currencies dropped the most in a week the previous day after mixed US data joined a pullback in the US Treasury bond yields. However, risk-off mood and challenges to sentiment put a floor under the prices.

On Thursday, US Initial Jobless Claims rose the most since January, to 211K for the week ended on March 03 versus 195K expected and 190K prior. Additionally, the Challenger Job Cuts were down and the Continuing Jobless Claims were up. Previously, the US ADP Employment Change rose to 242K in February versus 200K market forecasts and 119K prior (revised). Further, January JOLTS job openings were 10.8M, compared to an upwardly revised 11.2M prior and 10.6M market forecast.

With this, the early signals for Friday’s Nonfarm Payrolls (NFP) appear mixed and challenge the market’s push for 0.50% Fed rate hike in March, as backed by Federal Reserve Chairman Jerome Powell’s latest signals.

On the same line, the US 10-year and two-year Treasury bond yields eased to 3.92% and 4.87% versus 5.08% and 4.01% daily open respectively on Thursday. With this, the 10-year coupons marked the biggest daily loss in a week while the two-year counterpart flashed the heaviest fall in two months. As a result, Wall Street benchmarks closed with more than 1.5% daily losses each, with S&P 500 Futures printing mild losses by the press time.

Elsewhere, disappointment from China’s monthly Consumer Price Index (CPI) and Producer Price Index (PPI) data for February dims the prospects of recovery in the world’s second-largest economy, which in turn weigh on sentiment and allow DXY bears to take a breather. On the same line could be the fears of higher taxes in the world’s biggest economy, the US, as well as the political chaos relating to it as US President Joe Biden proposes raising corporation tax to cut $3 trillion from the fiscal deficit over the next decade.

Looking ahead, market forecasts suggest an overall easing in the US employment report for February. The same contrasts with the hawkish Fed bias to highlight the odds of a strong market move in favor of the US Dollar Index in case of a positive surprise.

Also read: Nonfarm Payrolls Preview: Five scenarios for the Fed, USD and stocks reactions, with probabilities

Technical analysis

Despite the latest pullback, the 100-DMA level surrounding 105.15 challenges the US Dollar Index bears.