US Dollar Index: DXY bulls defend US GDP led gains near 101.50 ahead of Fed’s preferred inflation

• US Dollar Index remains sidelined after a volatile day that ended with mild gains.
• US Real GDP came in softer for Q1 but details were impressive enough to lure Fed hawks.
• Challenges to sentiment from First Republic Bank, looming US debt ceiling talks also put a floor under DXY price.
• US Core PCE Price Index for March will be crucial as risk-on mood prod US Dollar bulls before FOMC.

US Dollar Index (DXY) steadies around mid-101.00s amid early Friday, after an active day that pleased buyers before paring some gains due to the US data releases and a cautious mood ahead of another key release.

Also challenging the greenback’s gauge versus the six major currencies is the recent improvement in the market sentiment mainly due to the upbeat performance of equities led by technology companies’ earnings. That said, the DXY jumped nearly 40 pips on the US GDP and PCE data releases before trimming half of the gains afterward. Even so, the US Dollar Index ended Thursday on the positive side.

The first readings of the US Gross Domestic Product (GDP) for the first quarter (Q1) of 2023, also known as Advance readings, marked mixed outcomes. That said, the headline US GDP Annualized eased to 1.1% from 2.0% expected and 2.6% prior but the GDP Price Index inched higher to 4.0% on an annualized basis from 3.9% prior and 3.8% market consensus. Further, the Personal Consumption Expenditure (PCE) Prices for Q1 rallied to 4.2% from 3.7% in previous readouts whereas the Core PCE figures also crossed 4.8% market forecasts and 4.4% prior with 4.9% mark for the said period. It should be noted that a slump in the weekly Initial Jobless Claims also allowed the US Dollar to remain firmer.

With this, a stronger-than-expected increase in the inflation component of the GDP renewed hawkish concerns about the Federal Reserve (Fed) and helped the US Dollar to pick up bids after the release.

Apart from the data, the banking fallout risks also favored the DXY bulls previously but the upbeat earnings from Meta Platforms, the parent company of Facebook, Instagram and Whatsapp, allowed the market sentiment to improve and weighed on the US Dollar afterward. That said, US banking fallout fears regain momentum amid reports that the First Republic Bank (FRB) plans to sell half its loan book to fill a $100B deposit flight gap.

Elsewhere, US policymakers are at loggerheads about the US debt ceiling extension even after passing the first step to kick-start the negotiations. Recently, House Speak Kevin McCarthy said, “I won't pass a clean debt-limit increase.”

Against this backdrop, Wall Street closed with notable gains and marked the biggest positive day of the week while yields also rose.

Moving on, the US Core PCE Price Index for March, the Fed’s preferred inflation gauge, expected to ease to 4.5% YoY versus 4.6% prior, will be important ahead of the next week’s monetary policy meeting of the US central bank, namely the Federal Reserve (Fed).

Also read: US Core PCE Preview: Why this is a lose-lose situation for the US Dollar

Technical analysis

A three-week-old symmetrical triangle, currently between 101.00 and 101.75, restricts short-term US Dollar Index (DXY) moves.