US Dollar Index struggles above 103.00 as Treasury bond yields retreat, US inflation eyed

• US Dollar Index fades the previous day’s corrective bounce off seven-month low.
• US Treasury bond yields retreat after snapping two-day downtrend on Tuesday.
• Fed Chair Powell’s mum on future policy moves, mixed US data join anxiety ahead of CPI to probe DXY traders.

US Dollar Index (DXY) remains pressured towards the 103.00 round figure, around 103.25 by the press time, as it fails to extend the previous day’s bounce off the multi-day low. In doing so, the greenback’s gauge versus the six major currencies traces the downbeat US Treasury yields while also portraying the market’s inaction ahead of the US Consumer Price Index (CPI) data.

That said, the US 10-year Treasury bond yields rose 10 basis points (bps) to 3.61% at the latest, following a corrective bounce to snap the two-day downtrend marked the previous day. The same join the upbeat Wall Street closing to help S&P 500 Futures print mild gains and weigh on the US Dollar’s safe-haven demand.

It’s worth noting that Federal Reserve (Fed) Chair Jerome Powell's inability to provide and clear directions for the US central bank’s next moves at Riksbank's International Symposium on Central Bank Independence amplified the market’s uncertainty and weighed on the US Dollar. The policymaker highlighted the Fed’s autonomous nature and no obligation towards climate control while praising the US central bank’s latest moves in his latest public appearances. It’s worth noting that Federal Reserve Governor Michelle Bowman failed to impress DXY bulls despite appearing hawkish while stating that more rate rises are needed to combat high inflation.

Elsewhere, mixed US data also probes the US Dollar Index bulls as the US NFIB Business Optimism Index for December dropped to the lowest levels since 2013 if ignoring multiple jitters during the global Covid wave. Further, US Wholesale Inventories also remained unchanged with 1.0% growth for November.

Alternatively, recession woes and the Fed policymakers' hesitance in welcoming bearish bias keep the DXY bulls hopeful ahead of the key inflation data. On Tuesday, the World Bank (WB) came out with its revised economic forecasts and signaled a favor to the traditional haven. That said, the WB stated that it expects the global economy to grow by 1.7% in 2023, down sharply from 3% in June's forecast, as reported by Reuters. The Washington-based institute also raised fears of global recession by citing the scale of recent slowdowns.

Looking forward, China’s headlines CPI and Producer Price Index (PPI) data for December may offer immediate directions but major attention will be given to the US inflation numbers for clarity.

Technical analysis

Unless providing sustained trading beyond a downward-sloping support-turned-resistance line from mid-December 2022, around 103.40 by the press time, US Dollar Index remains vulnerable to further downside.