US Dollar Index consolidates post-Fed losses around 105.00, yields eyed

• DXY pares the heaviest daily fall in a fortnight as Treasury yields struggle to extend Fed-inspired losses.
• Treasury yields fail to recover much but remain above post-Fed trough.
• Markets struggle to hold recent optimism amid a lack of major data/events.
• Second-tier US data, Friday’s speech from Fed Chair Powell eyed for clear directions.

US Dollar Index (DXY) reverses the post-Fed losses during early Thursday morning in Europe. That said, the greenback gauge versus the six major currencies retreat from an intraday high of 105.11 to 105.00 by the press time. Even so, the DXY prints 0.15% daily gains at the latest.

US 10-year Treasury yields fade rebound from an intraday low of 3.288% to 3.30% while posting daily losses for the second consecutive day, down 8.6 basis points (bps) at the latest. It’s worth noting that the bond coupons dropped the most since early March after the US Federal Reserve announcements.

On Wednesday, the US Federal Reserve (Fed) unveiled the biggest interest rate hike since 1994 to battle inflation fears. The US central bank also revised inflation forecasts for this year and the next while cutting down the inflation expectations. Further, the policymakers also signaled either a 50 bp or 75 bp rate hike in the next meeting. However, the Fed’s rejection of the odds of a 100 bp rate increase and Chairman Jerome Powell’s measured comments seem to have downed the Treasury bond yields afterward.

It’s worth noting that the downbeat US data also weighed on the US Dollar Index the previous day. US Retail Sales marked a contraction of 0.3% MoM versus an anticipated growth of 0.2% and downwardly revised 0.7% in previous readings. Also, the NY Empire State Manufacturing Index dropped to -1.2 compared to 3.0 market consensus and -11.6 prior.

Looking forward, the second-tier housing and activity data from the US may entertain equity traders ahead of Friday’s speech from Fed Chair Jerome Powell. Should the policymaker reiterate hawkish expectations from the US economy and turns down expectations of witnessing 100 bps rate hikes, as some in the markets expect, the DXY could have further upside to track.

Technical analysis

A daily closing below the 5-DMA level surrounding 104.95 appears necessary for the DXY to convince short-term sellers. Otherwise, further upside momentum towards the 106.00 threshold can’t be ruled out.