US Dollar Index: Fed policy pivot chatters weigh on DXY near 101.50, inflation clues eyed

• US Dollar Index licks its wounds around one-week low after declining the most in three weeks.
• Lack of major positive surprises from US inflation, unimpressive FOMC Minutes weigh on DXY.
• Fears of no more Fed rate hikes past May gain momentum and weigh on yields, US Dollar.
• US PPI, Michigan Consumer Sentiment Index and inflation expectations eyed for further directions.

US Dollar Index (DXY) seesaw around a one-week low as it makes rounds to 101.50 during early Thursday, after falling the most since late March the previous day. In doing so, the greenback’s gauge versus the six major currencies seeks fresh clues to defend bears as most top-tier data/events from the US are out and loud.

Talking about inflation, the US Consumer Price Index (CPI) dropped to the lowest level since May 2021, to 5.0% YoY in March from 6.0% prior and versus 5.2% market forecasts. However, the annual Core CPI, namely the CPI ex Food & Energy, improved to 5.6% YoY during the said month while matching forecasts and surpassing 5.5% prior.

Further, 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, which in turn offered no fresh information and raised doubts on the hawkish Fed moves, apart from May’s 0.25% rate hike. “Several Federal Reserve policymakers last month considered pausing interest rate increases after the failure of two regional banks and a forecast from Fed staff that banking sector stress would tip the economy into recession,” mentioned Reuters.

Not only the US inflation and Fed Minutes, but comments from some of the Federal Reserve (Fed) Officials also suggest easing inflation and the need for a halt to the rate hike trajectory, which in turn weighs on the US Treasury bond yields and the US Dollar Index.

That said, San Francisco Federal Reserve Bank President Mary Daly said that they had good news on inflation but added that she doesn't want to forecast the end of the tightening cycle. On the same line, Richmond Federal Reserve President Thomas Barkin said on Tuesday, in an interview with CNBC, that inflation certainly has peaked but warned that there are still ways to go. 

Amid these plays, the US 10-year Treasury bond yields snapped a three-day uptrend with mild losses to around 3.40% while the two-year counterpart also eased to 3.96% by marking the first daily negative in five. Further, Wall Street closed with minor losses while S&P 500 Futures also print mild downside at the latest.

Looking ahead, today’s US Producer Price Index (PPI) for March and Friday’s preliminary readings of the Michigan Consumer Sentiment Index for April will be closely observed. Above all, the Fed talks and the bond market moves are crucial for DXY traders to follow for clear directions.

Technical analysis

A daily closing below a 10-week-old ascending support line, around 101.45 by the press time, becomes necessary for the US Dollar Index (DXY) bears to renew yearly low, currently around 100.80. Meanwhile, corrective bounce remains elusive unless the quote remains below a three-week-old descending resistance line, at 102.58 by the press time.