US Dollar Index struggles to justify hawkish Fedspeak, FOMC Minutes ahead of US CPI

• US Dollar Index remains sidelined after retreating from two-week high.
• Fed Minutes portrays policymakers’ concern for inflation, fears of doing too little.
• Comments from Fed’s Bowman, yields and hawkish Fed bets challenge recent downside.
• US CPI for September is likely to ease but expected improvement in Core CPI may recall DXY bulls.

US Dollar Index (DXY) portrays the pre-data anxiety while taking rounds to 113.20, after snapping a five-day uptrend with mild losses the previous day. In doing so, the greenback’s gauge versus the six major currencies fails to justify the recently hawkish Fed bets and upbeat comments from the US Federal Reserve (Fed) policymakers during Thursday’s sluggish performance before the key US Consumer Price Index (CPI) data for September.

Federal Reserve Governor Michelle Bowman said on Wednesday that if high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures, reported Reuters. That said, CME’s FedWatch Tool takes clues from the hawkish bias at the US central bank, as per the latest Fed Minutes, as it portrays a nearly 85% chance of the Fed’s 75 bps rate hike in November.

The latest Federal Open Market Committee (FOMC) Meeting Minutes failed to impress the US dollar bulls despite showing the policymakers’ hawkish bias amid concerns over more persistently high inflation. The Fed Minutes also mentioned that the participants agreed the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee’s legislative mandate to promote maximum employment and price stability.

The DXY witnessed downside pressure on Wednesday while tracking softer yields even if the US Producer Price Index (PPI) printed better than forecast figures. The PPI declined to 8.5% YoY in September versus 8.4% expected and 8.7% prior. Further, the Core PPI eased to 7.2% versus 7.3% previous readings and market forecasts. Also should have helped the US Dollar Index, but did not, were the fresh fears of coronavirus emanating from China and Europe.

While portraying the mood, yields remained weak for the second consecutive day and the equities ended the day with mild losses while the US dollar snapped a five-day uptrend. Further, the S&P 500 Futures and the yields remain lackluster at the latest.

It should be noted that the market’s latest anxiety may allow the US dollar to push back the bears but a firmer inflation number is a must for the DXY to recall the buyers. Forecasts suggest, the headline CPI to ease to 8.1% YoY versus 8.3% prior but the more important CPI ex Food & Energy is likely to increase to 6.5% YoY from 6.3% prior and can trigger more downside considering the recession woes.

Also read: US September CPI Preview: Monthly core inflation is the figure to watch

Technical analysis

US Dollar Index (DXY) bulls need a daily closing beyond a two-week-old resistance area surrounding 113.35-40 to keep the reins.