US Dollar Index: Dovish Fed rate hike weighs on DXY below 101.50, focus on ECB, banking jitters

• US Dollar Index remains depressed after falling the most in seven weeks.
• Fed fails to impress US Dollar bulls despite 0.25% rate hike as policy pivot gains attention.
• Looming fears of US default, banking sector turmoil also weigh on DXY.
• Second-tier US data can entertain traders, risk catalysts are the key ahead of NFP.

US Dollar Index (DXY) remains pressured at the lowest level in a week, recently licking its wounds near 101.30 amid early Thursday in Asia, after falling the most in two months due to the Federal Reserve’s dovish rate hike. Also exerting downside pressure on the greenback’s gauge versus six major currencies are the fears surrounding the US default and baking crisis.

US Federal Reserve (Fed) matched market forecasts on Wednesday by announcing a 0.25% increase in the benchmark Fed rate, making it the highest since 2007. Fed Chairman Jerome Powell also appeared positive while ruling out fears of a banking rout. However, a dropping in the statement suggesting the need for further rate hikes gained major attention and weighed on the US Dollar despite the hawkish move by the Fed.

Apart from the Fed, the looming banking crisis in the US also weighs on the US Dollar as PacWest Bancorp recently became another US bank to witness the heat of excess withdrawal and is on the brink of collapse. That said, Western Alliance Bancorp is also in the line and hence the US banking sector appears in trouble moving forward, which in turn sours the market sentiment and prods the hawkish central banks, as it did to the Fed.

Furthermore, the comments from the White House suggesting debt limit default could cost 8.3 million job losses also weigh on the sentiment and the US Dollar.

It’s worth noting that the upbeat US data also failed to impress the DXY bulls. US ADP Employment Change rose to 296K for April from 142K prior versus 148K market forecast. Additionally, the annual pay growth declined to 13.2% from 14.2%. Further, ISM Services PMI improved to 51.9 in April versus 51.8 market forecasts and 51.2 previous readings. It’s worth noting, however, that the S&P Global Services PMI and Composite PMI for April eased to 53.6 and 53.4 versus 53.7 and 53.5 respective priors.

While portraying the mood, Wall Street closed with minor losses and the yields remain pressured while weighing on the US Dollar Index.

Looking forward, DXY traders will pay close attention to the risk catalysts for fresh impulse amid a dearth of top-tier data. However, European Central Bank (ECB) Monetary Policy Meeting can entertain traders.

Technical analysis

Failure to provide a daily closing below the three-week-old ascending support line, near 101.15 by the press time, joins nearly oversold RSI (14) line to signal corrective bounce in the US Dollar Index price.