US Dollar Index: DXY traces firmer yields on its way to 103.00 despite Fed talks about victory on inflation

• US Dollar Index grinds higher after a volatile day that initially refreshed weekly low before marking positive close.
• US CPI for July marked mixed figures but Fed policymakers are in rush to celebrate victory over inflation.
• Cautious mood ahead of more data, lack of dovish confirmation from US inflation propel yields and DXY despite early-day inaction.

US Dollar Index (DXY) bulls occupy the driver’s seat, despite the early Asian session dormancy. That said, the Greenback’s gauge marked a volatile performance on Thursday as it initially slumped to refresh the weekly low before bouncing off 101.81, as well as closing the day on a positive side. It’s worth noting that the DXY edges higher around 102.65 by the press time.

Talking about the US data, the headline Consumer Price Index (CPI) for July matched market forecasts to reprint 0.2% MoM figures. However, the yearly CPI improved slower-than-expected 3.3% to 3.2% YoY for the said month, versus 3.0% previous readings, marking the first acceleration in the annual rate in 13 months.

Furthermore, the CPI ex Food & Energy, also known as the Core CPI, also flashed an unchanged 0.20% MoM figures while meeting market consensus but eased to 4.7% YoY compared to 4.8% marked in June and the expected numbers.

Additionally, the US Initial Jobless Claims rose to 248K for the week ended on August 04 versus 230K expected and 227K prior while Continuing Jobless Claims softened to 1.684M from 1.692M (revised), versus 1.71M market forecasts.

After the mostly downbeat US data, a slew of policymakers from the Federal Reserve (Fed) crossed wires while conveying the US central bank’s hard-earned victory on inflation. However, their tones appeared less convincing for doves and joined the risk-negative concerns about China to fuel the US Treasury bond yields, as well as the DXY afterward.

That said, Philadelphia Federal Reserve Bank President Patrick Harker raised a toast to the Fed’s progress in its fight against inflation and was joined by Boston Federal Reserve President Susan Collins and Atlanta Federal Reserve Bank President Raphael Bostic to cheer the softer US CPI. However, San Francisco Fed President Daly turned down the cheers for their victory while saying, “There’s still more work to do.” 

Growing fears that the UK and European Union will also follow the US in limiting investment in China technology companies seem to have challenged the market’s geopolitical concerns. Further, the chatters about slower economic growth in top-tier economies and recession woes in China, Germany and the UK pushed back the US Dollar buyers as well.

While portraying the mood, the US 10-year Treasury bond yields jumped the most in a week to 4.10% at the latest. Even so, Wall Street managed to end the day on a positive side, despite trimming gains by the day’s end, whereas the S&P500 Futures also remain mildly bid at the latest.

Looking ahead, the US Producer Price Index (PPI) for July will precede the first readings of the University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for August to direct intraday DXY moves. Also important will be the UoM 5-Year Consumer Inflation Expectations for the said month. Above all, the central bank updates and China news will be crucial to determine the quote’s further direction.

Technical analysis

A daily closing beyond the downward-sloping resistance line from May 31, now immediate support around 102.50, directs US Dollar Index bulls toward the monthly high marked the last week near 102.85.