US Dollar Index: DXY bears prod 2023 bottom as US inflation clues prompt Fed policy pivot talks

• US Dollar Index remains pressured at the 2.5-month low, also near the lowest levels in 2023.
• Softer US inflation data, higher Initial Jobless Claims bolster calls for Fed policy pivot and weigh on DXY.
• US Retail Sales, Michigan CSI and Consumer Inflation Expectations eyed for fresh impulse.

US Dollar Index (DXY) remains pressured around 101.00 during early Friday’s sluggish trading, after falling to the lowest levels in 10 weeks the previous day amid a three-day downtrend. In doing so, the greenback’s gauge versus the six major currencies highlights the market’s positioning for the Federal Reserve (Fed) policy pivot after witnessing multiple downbeat clues of the US inflation.

Having witnessed disappointment from the headline US Consumer Price Index (CPI), the US Producer Price Index (PPI) for March dropped to a four-month low of -0.5% MoM versus 0.0% expected and prior. Further, the PPI YoY also declined to 2.7% from 4.9% previous readouts, versus market forecasts of 3.0%. Additionally weighing on the hawkish Fed bets and the US Dollar is the US Initial Jobless Claims figure as it rose to 239K versus 232K expected and 228K prior.

It’s worth noting that the Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting signaled that the expectations for rate hikes were scaled back due to the turmoil in the banking sector. With this, the Minutes offered no fresh information and raised doubts about the hawkish Fed moves, apart from May’s 0.25% rate hike. That said, the CME’s FedWatch Tool signals a 68% chance of a 0.25% rate hike in March versus 71% marked the previous day.

On a different page, multiple statements from the International Monetary Fund (IMF) and the World Bank (WB) spring gathering of the global central bank officials suggest that the recession woes are more likely in the West, which in turn weighs on the US Dollar amid softer inflation data. Furthermore, hopes of economic recovery in Asia and the moves to destabilize the US Dollar’s reserve currency status by Russia, China and Brazil also weigh on the US Dollar Index.

Against this backdrop, S&P 500 Futures print mild losses by the press time, despite the firmer closing of Wall Street. Further, the US 10-year and two-year Treasury bond yields fade the previous day’s recovery and exert downside pressure on the DXY.

Moving on, US Dollar Index may remain pressured even if the scheduled consumer-centric data provide a positive surprise, unless the data is too strong. That said, US Retail Sales for March, expected to repeat -0.4% MoM figure, precedes the preliminary readings of the US Michigan Consumer Sentiment Index (CSI), likely staying unchanged at 62. Also important to watch will be the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations, prior 2.9%.

Technical analysis

Tuesday’s clear U-turn from the 21-day Exponential Moving Average (EMA), around 102.35 by the press time, allows the US Dollar Index to break the yearly low of 100.80.