US Dollar Index stays defensive around 112.00 despite hawkish Fed bets

• US Dollar Index holds lower ground following the first weekly loss in three.
• Cautious optimism, downbeat US PMIs challenge DXY bulls amid pre-Fed silence.
• Hawkish Fed bets, geopolitical concerns challenge the bearish bias.

US Dollar Index (DXY) remains on the back foot around 111.85, taking rounds to intraday low while struggling to extend the week-start gains during Tuesday’s Asian session. That said, the cautious optimism in the market and the downbeat US data, as well as an absence of Fedspeak, weigh on the DXY.

That said, the recent optimism surrounding the UK and the EU’s economies seemed to have joined the absence of the Fed policymakers’ speech and the mildly bid equities to weigh on the greenback’s gauge versus the six major currencies.

Ex-Chancellor’s victory in the UK Prime Minister’s race joins the mildly positive German Services PMI for October, despite being in the contraction zone, keeps the market’s mood positive amid mixed earnings. Also, the latest round of the Fedspeak appeared to have faded the previous hawkish tone and might have been the reason to trigger the chatters over the easy rate hike from December, which in turn favor the cautious optimism and weigh on the DXY.

That said, the US S&P Global PMIs for October suggest that the Manufacturing activities’ gauge dropped to 49.9 versus 51.2 expected and 52.0 prior while its services counterpart slid to 46.6 from 49.3 previous reading and 49.2 market forecasts. With this, the Composite PMI for the said month declined to 47.3 compared to 49.1 anticipated and 49.5 prior.

Even so, the inflation precursors, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, rose to a two-month high in their latest readings and keep the buyers hopeful. On the same line could be the CME’s FedWatch Tool that prints a nearly 95% chance of a 75 bps Fed rate hike in November.

While portraying the mood, Wall Street closed with gains while the US Treasury yields also ended the day on the positive side after a downbeat start. That said, the S&P 500 Futures remain mildly bid while the US Treasury yields grind higher amid a lackluster market session.

Looking forward, a light calendar will challenge the DXY moves and can praise the bears despite risk aversion.

Technical analysis

An upward-sloping support line from August 11, 2022, around 111.55, challenges the DXY’s downside move. The recovery, however, remains elusive unless crossing the monthly resistance line near 112.75.