US Dollar Index struggles to justify hawkish Fedspeak below 105.00, US Core PCE Inflation eyed

• US Dollar Index snaps two-day uptrend with mild losses.
• Fed policymakers keep suggesting higher rates for longer, US PMIs eased in December.
• Firmer prints of Fed’s preferred inflation gauge could help DXY bulls.

US Dollar Index (DXY) drops to 104.70 as it pauses the two-day uptrend amid a sluggish start to the week. In doing so, the greenback’s gauge versus the six major currencies prints mild losses even as the US Federal Reserve (Fed) policymakers appear hawkish in their latest comments.

The Fed tried to convince bulls of its hawkish capacity but lifting the dot-plot and showing readiness to keep the rates higher for longer in the last week. Even so, the 50 bps rate hike and an absence of any majorly positive comments from Fed Chair Jerome Powell favored the DXY bears on a weekly basis.

Recently, New York Fed President John Williams said that it was possible for the FOMC to hike more than the terminal rate projected in the dot plot. On the same line, Cleveland Fed President Loretta Mester said her estimate for interest rates is higher than that of her colleagues and the central bank needs sustained tight policy to defeat inflation.

It should be noted, however, that downbeat US PMIs and the Fed’s hesitance seem to tease the DXY bears ahead of the US central bank’s preferred inflation gauge, namely the US Core Personal Consumption Expenditures (PCE) - Price Index for November, up for publishing on Friday. Recently, the US S&P Global Manufacturing PMI dropped to 46.2 from 47.7 in November, as well as the market expectation of 47.7. Further, S&P Global Services PMI declined to 44.4 in December's flash estimate from 46.2 in November and market expectation of 46.8.

Even so, recent fears emanating from China and a year-end consolidation may help the DXY bulls if the US Core Personal Consumption Expenditures (PCE) - Price Index offer a positive surprise versus 4.6% YoY expected and 5.0% previous readings.

That said, fears of global economic slowdown appear to recently weigh on the market sentiment and underpin the US Treasury bond yields. However, the mildly bid stock futures and equities challenge the DXY bulls.

Moving on, a light calendar for today may restrict DXY moves, which in turn highlights risk catalysts for fresh impulse.

Technical analysis

An upside break of the one-month-old descending trend line, around 104.30 by the press time, keeps DXY bulls hopeful.