US Dollar Index: DXY marches towards 102.00 as First Republic woes join hawkish Fed bets

• US Dollar Index picks up bids to reverse late Friday’s pullback from one-week high.
• FDIC calls bids for First Republic Bank after heavy withdrawals propelled banking fears.
• Early signals for US inflation came in firmer and favored Fed hawks even as US GDP eased.
• Fed is expected to announce 0.25% rate hike but signals for future moves are the key, US NFP eyed too.

US Dollar Index (DXY) justifies its safe-haven status, also backed by the hawkish Fed bets, as it renews the intraday high to around 101.70 during the early hours of Monday. In doing so, the greenback’s gauge versus the six major currencies benefit from the market’s fears surrounding the First Republic bank, as well as the recently upbeat US data, ahead of this week’s Fed meeting and the US Nonfarm Payrolls (NFP) releases.

A large exodus in the First Republic bank’s deposit caused the share prices to plunge heavily in the last week and pushed the Federal Deposit Insurance Corporation (FDIC) finally took a tough decision to call in bids for the troubled bank. This attracted multiple top-tier private organizations, including JP Morgan, to bid for the bank’s takeover. The results are up for release and can give only knee-jerk optimism as an immediate defense of the bank by a private player isn’t a solution to the broad banking problems. On the contrary, the same raises fears of such actions for the larger public banks in the future and hence can keep the risk-off mood intact.

On the other hand, 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 Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index, for March matched 0.3% market forecasts and prior to MoM but rose to 4.6% from 4.5% expected on YoY, with an upwardly revised previous reading of 4.7%. On the same line, the US Employment Cost Index also increased by 1.2% in Q1 2023, versus the 1% increase marked previously.

With this, the CME Group FedWatch Tool suggests higher odds of the Fed’s 0.25% rate hike in May and June, as well as a reduction in the market’s bets on the September rate cut from the US central bank.

Against this backdrop, S&P 500 Futures print mild losses even as Wall Street closed positive and the yields eased.

Moving on, US ISM Manufacturing PMI for April may entertain intraday traders of the DXY but major attention will be given to the headlines surrounding the First Republic Bank and the Fed. It’s worth noting that the US jobs report for April is also on the calendar and can entertain the US Dollar Index traders. Above all, the greenback is well set for consolidating the losses made in March and April.

Technical analysis

A clear upside break of one-month-old descending resistance line, around 101.70 by the press time, becomes necessary for the US Dollar Index (DXY) to convince buyers.