US Dollar Index: DXY eases above 104 as FOMC Minutes loom, focus on Fed bets, yields

• US Dollar Index struggles to extend the previous day’s run-up around six-week high.
• Upbeat US data, geopolitical fears underpinned the DXY’s rise on Tuesday.
• Strong US Treasury bond yields also pleased greenback buyers on US traders’ return from long weekend.
• Fed Minutes should avoid mentioning policy pivot to keep DXY bulls on board.

US Dollar Index (DXY) renews its intraday low near 104.12 as it pares the biggest daily gains in a week during early Wednesday.

That said, the greenback’s gauge versus the six major currencies rose the most in one week the previous day as the US business activity numbers matched the likes of previously published US inflation numbers, Retail Sales and employment data. Also fueling the DXY were the market’s geopolitical fears surrounding China and Russia.

As per the latest readings, the preliminary US S&P Global Manufacturing PMI rose to 47.8 in February from 46.9 prior and versus 47.3 market forecasts while the Services PMI jumped to the eight-month high to 50.5 compared to 47.2 expected and 46.8 previous readings. As a result, the S&P Global Composite PMI surpassed 47.5 analysts’ consensus and 46.8 previous reading to mark 50.2 figure.

The strong data helped the FEDWATCH tool to suggest that the money market participants see the benchmark level peaking at 5.3% in July, and staying near those levels throughout the year, versus 5.10% expected by the US Federal Reserve (Fed).

Talking about geopolitical risk, comments from US Secretary of State Antony Blinken and Russian President Vladimir Putin were the top catalysts that weigh on the market sentiment and fuelled the US Dollar’s haven demand. That said, the US Secretary of State Blinked said the United States suspects China is considering providing military support to Russia. On the same line are the market concerns of the US-Taiwan trade deal. On the other hand, Russia suspended its nuclear arms treaty with the US and pledged to maintain its military actions in Ukraine.

Furthermore, Russian President Vladimir Putin delivered his state of the nation address to Russia’s Federal Assembly while speaking to both houses of parliament on Tuesday. During the speech, Russian President Putin clearly mentioned, “Our task is to lead our economy to new frontiers,” which in turn highlights further geopolitical tension surrounding Ukraine. On the same line, US Deputy Treasury Secretary Wally Adeyemo said on Tuesday, “US and allies plan new sanctions this week to continue to isolate Russia over the war in Ukraine.”

Amid these plays, the US 10-year and two-year treasury bond yields seesaw around the three-month highs marked the previous day while S&P 500 Futures print mild gains despite Wall Street’s negative closing.

Looking ahead, a cautious mood ahead of the key data/events could probe DXY bulls before the Fed Minutes. However, any mention of the policy pivot in the Minutes may not hesitate to recall the US Dollar Index bears.

Technical analysis

Despite the latest inaction, the US Dollar Index successfully trades beyond the 50-day Exponential Moving Average (EMA) level of 103.80, which in turn keeps the DXY bulls directed towards a convergence of fortnight-old ascending trend line and 100-day EMA, near 104.90.