US Dollar Index licks its wounds below 105.00 as Fed Chair Powell’s Testimony, US NFP loom

• US Dollar Index prints mild losses after snapping four-week downtrend.
• Doubts over Fed’s further rate hikes, policy pivot discussions weigh on DXY.
• US Treasury bond yields seesaw after refreshing multi-day high, stock futures print mild losses amid cautious mood.
• Anxiety ahead of the key catalysts joins China-linked headlines to weigh on sentiment and probe US Dollar bears.

US Dollar Index (DXY) consolidates the biggest weekly loss in seven around 104.55-60 at the start of the key week comprising Federal Reserve (Fed) Chairman Jerome Powell’s half-yearly Testimony and the US employment report for February. In doing so, the greenback’s gauge versus the six major currencies cheers mild risk-off mood amid a sluggish Asian session.

That said, headlines from China’s annual session of the National People's Congress (NPC) appear to recently weigh on the risk profile as the dragon nation eyes a modest growth of 5.0%, versus market expectations of 6.0%, for the current year. Apart from the softer Gross Domestic Product (GDP) expectations, after reporting the slowest yearly GDP growth of 3.0% in decades, geopolitical concerns were also discussed and weighed on the sentiment, as well as the NZD/USD prices. “China should promote the peaceful development of cross-Strait relations and advance the process of China's "peaceful reunification", but also take resolute steps to oppose Taiwan independence,” said outgoing China Premier Li Keqiang.

It’s worth noting that softer prints of US data and mixed Fed talks weighed on the DXY the previous week.

US ISM Services PMI for February came in as 55.1 versus 54.5 market expectations and 55.2 market forecasts. The inflation component of the PMI survey, the Price Paid sub-index, edged lower to 65.6 in February from 67.8 but surpassed analysts' estimate of 64.5. The New Orders sub-index rose to 62.6 from 60.4 and the Employment Index advanced to 54 from 50 in the same period. Previously in that week, the US Durable Goods Orders for January eased while the Conference Board’s (CB) Consumer Confidence also flashed mostly downbeat details.

Furthermore, Federal Reserve Bank of Atlanta President Raphael Bostic renewed concerns about the Fed’s policy pivot as the decision-maker said, “The central bank could be in a position to pause the current tightening cycle by mid to late summer.” On the contrary, San Francisco Federal Reserve Bank President Mary Daly said during the weekend that if data on inflation and the labor market continues to come in hotter than expected, interest rates will need to go higher, and stay there longer, than Fed policymakers projected in December, as reported by Reuters. It should be observed that US Federal Reserve published a semi-annual Monetary Policy Report on Friday wherein it clearly said, “Ongoing increases in the Fed funds rate target are necessary.” The report also stated that the Fed is strongly committed to getting inflation back to 2%.

Against this backdrop, the US 10-year Treasury bond yields rose to the highest levels since November 2022 before easing to 3.95% at the latest. That said, Wall Street closed with gains but S&P 500 Futures printed mild losses by the press time.

Moving on, Fed Chair Powell’s testimony and China inflation data, as well as updates from China NPC, can offer short-term directions to the US Dollar Index. Following that, the US jobs report for February will be crucial for DXY traders. Should the latest losing streak of the US data continue, backed by Powell’s cautious remarks, the US Dollar may print more losses.

Technical analysis

A convergence of the 21-day and 50-day Exponential Moving Average (EMA), around 104.15-10, appears a tough nut to crack for the US Dollar Index (DXY) bears.