US Dollar Index: DXY bulls cheer debt ceiling drama, hawkish Fed talks at six-week high near 102.80

• US Dollar Index grinds higher after refreshing the multi-day top, marked the biggest weekly gain since September 2022.
• Fears of US default, banking sector fallout weigh on market sentiment and allow DXY bulls to return.
• US Retail Sales, Fed Chair Powell’s speech will be important but debt ceiling talks are the key.

US Dollar Index (DXY) stays on the front foot at the highest level in over a month, close to 102.75 amid a three-day uptrend during Monday’s Asian session.

The greenback’s gauge versus the six major currencies marked the first weekly gain in three while also posting the biggest run-up since late 2022 despite the downbeat US inflation signals. The reason could be linked to the looming concerns that the US may default in early June if the debt ceiling isn’t altered soon. On the same line were fears emanating from the US banks as some of the mid-tier ones posted heavy drawdowns in share prices and deposits in the last week.

It is worth noting that US President Joe Biden’s hint of US debt ceiling talks on Tuesday and a Treasury Official’s optimism seems to prod the DXY bulls of late, especially amid a light calendar and early Asian hours. However, the fact that the policymakers are at loggerheads and the Federal Reserve (Fed) officials remain hawkish seems to defend the US Dollar Index bulls. Alternatively, downbeat US data and the Fed’s latest dovish hike prod the DXY optimists.

The preliminary readings of the University of Michigan's (UoM) Consumer Confidence Index for May dropped to 57.7 from 63.5 prior versus 63.0 market forecasts. More interestingly, the one-year inflation expectations dropped from 4.6% to 4.5% for the said month but 5-year counterpart rose to the highest reading since 2011, from 3.0% to 3.2%. Even so, Fed Governor Philip Jefferson and St. Louis Fed President James Bullard defend the US central bank’s current monetary policy while citing higher inflation as a major challenge. On the same line, Federal Reserve (Fed) Governor Michelle Bowman said Friday, “policy rate will need to remain sufficiently restrictive for some time.”

Amid these plays, Wall Street closed with losses and the US Treasury bond yields managed to remain firmer while the S&P 500 Futures remain pressured.

Moving on, Tuesday’s US debt ceiling talks will be the key for the DXY traders to watch for immediate directions. Following that, US Retail Sales and a speech from Fed Chairman Jerome Powell should be eyed closely.

Technical analysis

A daily closing beyond the five-week-old resistance line, now immediate support near 102.10, allows the US Dollar Index (DXY) to aim for the 100-DMA resistance of around 102.95.