US Dollar Index retreats from two-decade high on mixed concerns, US PCE Inflation eyed

• US Dollar Index snaps six-day uptrend as bulls take a breather at multi-year high.
• Cautious mood ahead of the Fed’s preferred inflation gauge, off in Japan challenge DXY upside.
• Risk catalysts, hawkish Fed and upbeat details US GDP keep buyers hopeful.

US Dollar Index (DXY) extends its pullback from a 20-year high towards 103.50 during Friday’s Asian session. In doing so, the greenback gauge consolidates recent gains amid the absence of bond moves and cautious sentiment ahead of the Fed’s preferred inflation gauge.

Showa Day Holiday in Japan limits the bond moves in Asia and allows the greenback buyers to pause at the highest levels since 2002. Also challenging the DXY are the mixed concerns raised after the US Gross Domestic Product (GDP) release.

The DXY rose for the sixth consecutive day to refresh a multi-year high on Thursday even after the Q1 2022 US GDP dropped to -1.4% from 6.9% prior, versus the 1.1% forecast. The reason could be linked to the details concerning the personal consumption, inventories and net trade which flashed positive signs.

Despite the mixed data, the CME’s FedWatch Tool showed around a 96% probability of a 0.50% rate hike during the May monthly meeting. Also favoring the DXY bulls are the US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.

Read: US inflation expectations brace for fresh all-time high ahead of US PCE Price Index

It’s worth noting that the greenback’s safe-haven demand, amid the Russia-Ukraine crisis and China’s covid woes, add to the US Dollar Index strength.

Even so, the recently sluggish markets and an absence of Japanese traders, not to forget fears of disappointment from the US Core Personal Consumption Expenditures Price Index for March, expected to ease to 5.3% YoY versus 5.4% prior, weigh on the DXY prices of late.

Moving on, the DXY is likely to remain firmer amid hawkish Fed and risk-off mood. However, any disappointment from the US data may activate the much-awaited pullback ahead of the May Fed meeting.

Technical analysis

Although overbought RSI the year 2017 peak of 103.82 probes the DXY bulls, the US Dollar Index downside becomes elusive until the quote drops below a three-month-old immediate support line, near 102.30 by the press time.