US Dollar Index tracks tepid yields above 96.00 ahead of US Inflation

• DXY struggles to extend biggest daily gains in two weeks.
• Yields, stock futures dwindle amid Fed rate hike, China-linked chatters,
• US Initial Jobless Claims dropped to the lowest since 1969, inflation expectations ease.
• US CPI eyed, Omicron, geopolitics important too.

US Dollar Index (DXY) pokes intraday low of 96.20, consolidating the previous day’s heavy gains during early Friday. However, the greenback gauge marks dismal moves on a daily basis, down 0.02% at the latest, as market players turn cautious ahead of the key US inflation data.

DXY jumped the most since November 24 the previous day as risk-off mood underpinned the US dollar’s safe-haven demand. While geopolitics and Fed-linked headlines were the key to weigh on the risk appetite, Omicron and firmer US data offered extra burden on the sentiment, favoring the USD in turn.

That said, the US Treasury yields and the Wall Street benchmarks posted losses the previous day, portraying the risk-off mood, while the latest corrective pullback in both the risk barometers can’t be taken for market’s optimism amid a light calendar in Asia.

The US Initial Jobless Claims dropped to the lowest levels since 1969, 184K versus 215K expected and 227K forecast, and raised odds of the faster tapering by the US Federal Reserve (Fed). Among the Fed hawks expecting more rate hikes in 2022 and 2023 are the leading banks that include Goldman Sachs, JP Morgan and Morgan Stanley.

However, a pullback in the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data seems to have weighed the DXY recently. The inflation expectations snap a four-day recovery from early October lows while easing to 2.47% for Thursday, signaling odds of a negative surprise for the Fed hawks.

It’s worth noting that chatters surrounding looming defaults of China’s Evergrande and Kaisa join the Sino-American tension to add to the risk catalysts, helping the DXY to stay firmer. On the same line was the US support to Ukraine in a tussle with Russia and the Washington-Israel talks to convey Tehran’s diplomacy.

Alternatively, the market’s anxiety over the scheduled data and fears that the worsening virus woes may probe Fed actions challenge the DXY bulls of late.

Looking forward, the US Consumer Price Index (CPI) and the preliminary reading of the Michigan Consumer Sentiment Index will be crucial to forecast short-term DXY moves.

Read: US Consumer Price Index November Preview: Inflation is the new cause celebre

Technical analysis

A fortnightly symmetrical triangle restricts short-term US Dollar Index moves between 95.95 and 96.50.