US Dollar Index: US debt ceiling optimism, Fed bias spur DXY bulls past 104.00, US employment, PMIs eyed

• US Dollar Index retreats from the highest levels in 11 weeks.
• Positive expectations about US debt ceiling bill, mixed US data weigh on DXY.
• Recent Fed talks suggest pain for hawks as June rate hike concerns pushed back.
• US House of Representatives voting on debt ceiling bill, ADP Employment Change and PMIs eyed.

US Dollar Index (DXY) remains sidelined after retreating from the highest levels since mid-March 2023 amid early Thursday morning in Asia. The DXY initially rose to the highest levels since March 15 before retreating from 104.70 by the end of Wednesday’s North American trading session.

In doing so, the greenback’s gauge versus the six major currencies justifies the latest shift in the Federal Reserve (Fed) officials’ push for a pause in the rate hike trajectory, as well as hopes that members of the US House of Representatives will support the debt ceiling bill’s passage.

That said, the hope of US debt ceiling passage from the House of Representatives increased after US Senate Republican Leader McConnell conveyed expectations of the US debt ceiling bill passing and reaching the Senate on Thursday.

On the other hand, US JOLTS Job Openings rose to 10.103M in April versus 9.375M expected and 9.745M prior whereas Chicago Purchasing Managers’ Index dropped to 40.4 for May from 48.6 prior and 47.0 market forecasts.

The mixed US data allowed the Federal Reserve (Fed) officials to retreat from the previously hawkish bias and weighed on the US Dollar late Wednesday. That said, Federal Reserve (Fed) Governor Michelle Bowman cited recovery in the residential real estate market while also adding, “The leveling out of home prices will have implications for the Fed's fight to lower inflation,” per Reuters. Before him, Clevland Fed President Loretta Mester suggested that the Fed must go for a rate hike in June.

Additionally, Fed Governor and vice chair nominee Philip Jefferson said that skipping a rate hike would allow the Fed "to see more data before making decisions about the extent of additional policy firming,” per Reuters. On the same line was Federal Reserve Bank of Philadelphia President Patrick Harker who also said on Wednesday that he is inclined to support a "skip" in interest rate hikes at the central bank's next meeting in June.

While justifying the same, Wall Street Journal’s (WSJ) Nick Timiraos signaled that Federal Open Market Committee (FOMC) is likely to hold interest rates steady in June.

Against this backdrop, Wall Street closed with minor losses and the yields were down while the US Dollar Index (DXY) ended Wednesday’s North American trading on the positive side despite the latest retreat.

Looking ahead, the US House of Representatives is debating the US debt ceiling extension and will vote on it at around 00:30 GMT, which will be key to watch ahead of a slew of the US employment and activity data.

Also read: US ADP Employment, ISM Manufacturing PMI Preview: First down, then up for US Dollar?

Technical analysis

US Dollar Index (DXY) bulls need a sustained upside break of a downward-sloping resistance line from late November 2022, close to 104.20 by the press time, to lure the DXY bulls.