US Dollar Index: DXY bulls flex muscles around 102.50, yields, Fed bets in focus as full markets return

• US Dollar Index retreats from one-week high, challenges four-day uptrend.
• Traders reassess hawkish Fed bets as full markets return after multiple holidays.
• Doubts over Fed’s ability to offer rate hike in May also challenge DXY bulls.
• Risk catalysts, yields will be more important for intraday directions.

US Dollar Index (DXY) pares recent gains around 102.50 as it retreats from a one-week high, as well as snapping a four-day uptrend, during early Tuesday in Asia. In doing so, the greenback’s gauge versus six major currencies portrays the market’s cautious mood as full markets return after two consecutive days off in the major markets.

Late on Monday, Rick Rieder, Chief Investment Officer of global fixed income at BlackRock, the world's largest asset manager, said, “The Federal Reserve may not need to raise interest rates further to fight inflation, as the fallout from last month's turmoil in the banking sector and a series of recent labor data point to a slowing US economy,” per Reuters.

On the other hand, Federal Reserve (Fed) Bank of New York President, as well as the Fed’s Vice Chairman of the rate-setting committee, John Williams anticipated slower inflation while ruling out the interest rates as culprits for the previous month’s bank fallouts.

That said, the US Dollar Index previously traced firmer US Treasury bond yields while cheering mostly upbeat US employment numbers and hawkish Fed bets. Adding strength to the US Dollar is the currency’s haven demand amid the geopolitical fears emanating from China, mainly concerning Taiwan.

Against this backdrop, Wall Street benchmarks closed mixed while the US 10-year and two-year Treasury bond yields rose to 3.41% and 4.0% at the latest. It should be noted that the CME’s FedWatch Tool suggests a 72% chance of the Fed’s 0.25% rate hike in May, versus 57% odds favoring the same in the last week.

Moving on, multiple Fed policymakers are up for speeches and can entertain the US Dollar Index (DXY) traders. However, major attention will be given to the yields and Fed bets for clear directions ahead of Wednesday’s US Consumer Price Index (CPI) and Fed Minutes.

Technical analysis

A daily closing beyond one-month-old descending resistance line, now immediate support around 102.15, directs US Dollar Index bulls towards the 50-DMA hurdle of around 103.50.