US Dollar Index bears flirt with six-week low around 106.00, US PCE inflation eyed

• DXY struggles to overcome recent losses at multi-day low ahead of the key data.
• “Technical recession” in the US, inflation expectations make data interesting to watch.
• Fed’s preferred inflation gauge for July, second-tier activity numbers will be crucial for intraday direction.

US Dollar Index (DXY) licks its wounds near the 1.5-month low during Friday’s Asian session. That said, the greenback’s gauge versus the six major currencies dropped during the last two days before recently taking rounds to 106.20.

Easing fears of the Fed’s aggressive rate hike, backed by the US Q2 Gross Domestic Product (GDP) release, appear to drown the US dollar of late. On the same line are the US central bank’s neutral rate chatters and Fed Chairman Jerome Powell’s hopes of recovery.

After witnessing challenges for further rate hikes, as signaled by Fed’s Powell, the DXY players should have traced the Flash readings of the US Q2 GDP that marked the “technical recession” by declining for the second consecutive time to weigh on the greenback. That said, the first estimations of the US Q2 GDP printed -0.9% Annualized figure versus 0.5% expected and -1.6% prior. Further, the US Initial Jobless Claims also rose more than expected by 253K, with 256K during the week ended on July 22.

Elsewhere, US policymakers, including Fed’s Powell and Treasury Secretary Janet Yellen, tried to shrug off the “technical recession” after the US Q2 GDP dropped for the second consecutive time and teased the concept. The same probes the central bankers pushing for more rate hikes to tame inflation. Furthermore, talks between US President Joe Biden and his Chinese Counterpart Xi Jinping also went mostly okay and exerted downside pressure on the DXY.

Above all, heavy gains of the Wall Street benchmarks and the downside of the Treasury yields seemed to have drowned the US Dollar Index.

On the contrary, inflation expectations data, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED), refreshed the monthly high to 2.48% and renewed fears of higher Fed rates during the late Thursday, which in turn teased DXY buyers.

Hence, the Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index, expected 0.5% MoM for July versus 0.3% prior, will be important to watch for fresh impulse.

Technical analysis

A daily closing below the two-month-old ascending trend line, around 106.55 by the press time, directs DXY bears towards June’s peak of 105.79.