US Dollar Index: DXY traces retreat in yields to highlight five-week low near 103.00 on Fed Day

• US Dollar Index fades bounce off one-month low, prints five-day downtrend.
• US Treasury bond yields retreat despite policymakers’ push for taming fears of banking crisis.
• Mixed US data, likely dovish rate hike and unclear statements from Powell could weigh on DXY.
• Fed is expected to announce 0.25% Fed rate hike but dot plot and Chairman Powell’s speech are crucial to watch.

US Dollar Index (DXY) fades the previous day’s corrective bounce off a five-week low as it drops to 103.17 during the initial hours of Wednesday. In doing so, the greenback’s gauge versus the six major currency pairs declines for the fifth consecutive day while tracing the inability of the US Treasury bond yields to defend the two-day rebound from the multi-week low as the key Federal Reserve (Fed) decision loom.

The DXY managed to bounce off the lowest levels since mid-February the previous day as the market sentiment improved on comments from the US policymakers, as well as actions, to tame the fears emanating from the latest banking fallouts. Also underpinning the US Dollar Index rebound could be the hawkish Fed bets, marking a nearly 88% chance of the US central bank’s 0.25% rate hike in today’s Federal Open Market Committee (FOMC) monetary policy meeting.

That said, US Treasury Secretary Janet Yellen’s comments gained major attention as she said, "Treasury, Fed, FDIC actions reduced risk of further bank failures that would have imposed losses on deposit insurance fund."  Earlier on Tuesday, Bloomberg shared the news stating that the “US officials are studying ways they might temporarily expand Federal Deposit Insurance Corporation (FDIC) coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.”

Elsewhere, the US Existing Home Sales for February marked a notable jump of 14.5% versus 0.0% expected and -0.7% prior. However, the Philadelphia Fed Non-Manufacturing Business Outlook survey gauge dropped to -12.8 in March and tamed the US Dollar-linked optimism afterward.

As per the latest banking updates, the US policymakers are discussing ways to surpass the US Congress to defend the banks while the First Republic Bank eyes government help to encourage buyers.

Against this backdrop, S&P 500 Futures remain directionless at a fortnight high after rising in the last two consecutive days while the US Treasury bond yields struggle to extend a two-day rebound from the lowest levels since September 2022.

Looking ahead, DXY traders should concentrate on how the Fed can sound hawkish despite the looming banking crisis and a likely nearness to the policy pivot.

Also read: Fed Preview: A dovish last hike?

Technical analysis

Given the corrective bounce’s failure to provide a daily closing beyond the 50-DMA resistance surrounding 103.45, the US Dollar Index is likely to remain pressured towards the mid-February low near 102.55.