US Dollar Index: DXY traces downbeat yields above 101.00 as traders brace for US GDP, Fed

• US Dollar Index stays pressured near one-week low as yields drop amid Fed concerns, US debt ceiling drama.
• US politicians jostle over debt ceiling plan ahead of June expiration.
• Markets brace for Fed policy pivot, rate cuts in 2023 ahead of next week’s anticipated 0.25% lift.
• Spread between US one-month and three-month Treasury bond Yields widens the most since 2001.

US Dollar Index (DXY) remains depressed near 101.30 as it drops for the fourth consecutive day amid early hours of Tuesday’s Asian session. In doing so, the greenback index against the major six currencies tracks the downbeat US Treasury bond yields as traders prepare for dovish Federal Reserve (Fed) and downbeat US data.

Fears of the US reaching its debt limit expiration in June and a political drama ahead of that keep traders on their toes and push them towards the risk-safety, which in turn propelled the demand for one-month US Treasury bond yields. On the same line, are the clues that the US Federal Reserve (Fed) could announce one last rate hike, worth 0.25%, in May before signaling the policy pivot. With this, the difference between one-month and three-month US Treasury bond yields widen the most since 2001.

The same joins Monday’s downbeat performance of April month activity data from the Federal Reserve banks of Chicago and Dallas. That said, the Federal Reserve Bank of Chicago's National Activity Index (CFNAI) remained unchanged at -0.19 versus -0.02 expected. However, the publication added that the index’s three-month moving average, CFNAI-MA3, increased to +0.01 in March from –0.09 in February. On the other hand, Dallas Fed Manufacturing Business Index for the said month dropped to 23.4 for April versus -14.6 expected and -15.7 prior.

Furthermore, hopes of gradual economic recovery and an upbeat earnings season allow the US Dollar bears to stay hopeful.

Alternatively, geopolitical fears surrounding Russia, due to China’s alleged support to Moscow in fighting with Ukraine, as well as amid the Western readiness to increase sanctions on the Oil-rich nation, prod the market’s cautious optimism and prod the DXY bears.

Against this backdrop, Wall Street closed mixed and the US 10-year Treasury bond yields marked the biggest daily fall in three weeks before closing the day around 3.50%.

Moving on, US Conference Board’s (CB) Consumer Confidence gauge for April, expected to remain steady near 104.1 versus 104.2 prior, will be important for the intraday directions of the DXY. However, major attention will be given to US Q1 GDP, US Core PCE Price Index and the yields for a clear guide.

Also read: US Consumer Confidence Preview: Recession hints likely to keep the USD under pressure

Technical analysis

Although a double bottom formation around 100.80-78 puts a floor under the US Dollar Index (DXY) price, the 21-DMA hurdle near $101.95 challenges short-term recovery of the greenback’s gauge versus the six major currencies.