US Dollar Index: DXY depicts anxiety ahead of US inflation around mid-102.00s amid downbeat yields

• US Dollar Index treads water after snapping two-day winning streak.
• Bond market fears contrast with geopolitical woes surrounding China to also prod DXY.
• US President Biden approved limited ban on investments in China technology companies.
• US CPI for July becomes more important due to softer NFP, Fed policy pivot concerns.

US Dollar Index (DXY) remains sidelined near 102.45 during Thursday’s Asian session, after posting the first daily loss in three. In doing so, the Greenback’s gauge versus the six major currencies portrays the market’s cautious mood ahead of today’s United States inflation data, per the Consumer Price Index (CPI) for July.

Today’s US inflation numbers become all the more important after the latest disappointment from the Nonfarm Payrolls (NFP) for the said month. Further, the recently downbeat MBA Mortgage Applications, falling for the third consecutive week of late, also test the DXY bulls, especially amid the growing chatters of the Federal Reserve’s (Fed) policy pivot. With this, the CME Group FedWatch Tool shows that markets are pricing in an 86.0% chance that the Federal Reserve will pause interest rate hikes at its meeting in September. 

Apart from the Fed concerns, the recently easy US Treasury bond yields also flag economic woes about the US and weigh on the DXY. That said, the US 10-year Treasury bond yields dropped in the last two consecutive days to signal the first weekly loss in four, around 4.01% by the press time.

Even so, the looming economic fears from China, Europe and the UK join the global rating agencies’ crackdown on banks to weigh on the sentiment and puts a floor under the US Dollar Index. On the same line are fears of deflation in China and the market’s doubts about future moves of the major central banks.

Late Wednesday, US President Joe Biden signed the much-awaited bill that allows the US Treasury Department to prohibit or restrict certain US investments in Chinese entities, per Reuters.

Amid these plays, Wall Street closed in the red and the US Treasury bond yields were down while the S&P500 Futures printed mild gains by the press time.

Moving on, US CPI and Core CPI for July will be crucial to watch amid looming dovish Fed concerns, which if confirmed can extend the DXY’s latest retreat from the key resistance line. That said, market forecasts suggest an improvement in the headline CPI to 3.3% YoY versus 3.0% prior while the Core CPI, namely the CPI ex Food & Energy, may remain unchanged at 4.8%.

Technical analysis

US Dollar Index retreats from a five-week-old descending resistance line, around 102.55 by the press time, but the 100-DMA and a three-week-old rising support line, close to 102.30 and 102.00 round figure, challenge DXY bears.