US Dollar Index: Hawkish Fed bets favor DXY bulls despite mixed US data, focus on PMI

• US Dollar Index seesaws around monthly support line as bulls keep the reins.
• Softer US data, mixed geopolitical headlines challenge DXY bulls.
• Upbeat European data contrast with hawkish Fed rate concerns as US PMIs loom.
• Bulls remain hopeful amid expectations of worsening inflation woes.

US Dollar Index (DXY) bulls flirt with the 105.00 hurdle during Wednesday’s sluggish Asian session, following a stellar rebound marked a few hours ago. In doing so, the US Dollar’s gauge versus the six major currencies portrays the market’s cautious mood as traders brace for the key data/events lined up during the all-important March month, comprising Federal Reserve (Fed) Chairman Jerome Powell’s speech and Fed’s monetary policy meeting.

The DXY witnessed a pullback early Tuesday amid cautious optimism in the market and month-end consolidation. Adding strength to the pullback moves was mixed US data. However, hawkish concerns surrounding Fed’s interest rate moves recalled the US Dollar buyers afterward. It’s worth noting that the DXY marked the biggest monthly gains since September 2022, not to forget that it snapped a four-month downtrend, in February.

That said, the US Conference Board’s (CB) Consumer Confidence dropped for the second consecutive month to 102.9 versus 106.0 prior (revised) while US Housing Price Index drops 0.1% in December versus -0.6% market forecasts and -0.1% prior. On the same line, the S&P/Case-Shiller Home Price Indices grew 4.6% YoY during the said month compared to 6.1% market expectations and 6.8% previous readings. Furthermore, Chicago Purchasing Managers’ Index for February eased to 43.6 from 44.3 previous readings and 45.0 market consensus. Additionally, the Richmond Fed Manufacturing Index for the said month eased below 11.0 prior and -5.0 expected to -16 for the said month.

Even so, Reuters reported that the US central bank is expected to deliver two additional 25-basis-point rate hikes in March and May while adding, “Financial markets are betting on another increase in June.”

While portraying the mood, Wall Street closed mixed and the US Treasury bond yields marked minor losses while the US Dollar Index (DXY) regained upside momentum in the last hour to end February on a firmer footing, by marking the first monthly gain in five.

Moving on, China’s official activity data for February precedes the US ISM Manufacturing PMI for the said month to direct intraday moves of the US Dollar Index. However, major attention should be given to the Fed's concerns for a clear guide.

Technical analysis

The DXY’s successful trading beyond the one-month-old ascending support line, close to 104.85 by the press time, joins the bullish MACD signals and upbeat RSI (14) line, to keep the US Dollar Index buyers hopeful of breaking a downward-sloping resistance line from early December 2022, near 105.30 at the latest.