US Dollar Index: DXY licks its wounds near 101.30 ahead of US inflation, bank survey report

• US Dollar Index picks up bids to pare recent losses after two-week downtrend.
• Friday’s US NFP came in firmer but revisions disappointed DXY bulls; Fed’s Bullard backs more rate hikes.
• Looming fears of US debt ceiling expiration, banking crisis put a floor under US Dollar price.
• US CPI for April, survey on US banking lending practises and current conditions will be eyed for clear directions.

US Dollar Index (DXY) rebounds from short-term key support as it consolidates losses made in the last two weeks around 101.35 early Monday in Asia. In doing so, the greenback’s gauge versus six major currencies benefits the latest hawkish Fedspeak and challenges market sentiment. Also keeping the DXY buyers hopeful is the cautious mood ahead of this week’s US inflation data and a survey report on the US banking lending practices and current conditions.

DXY failed to cheer the upbeat US employment report for Friday as the higher prints of Nonfarm Payrolls (NFP) failed to divert the market’s attention from downwardly revised prior readings. That said, the US Bureau of Labor Statistics (BLS) unveiled a jump in the headline Nonfarm Payrolls (NFP) by 253K expected and revised down prior readings of 165K. Further, the Unemployment Rate also eased to 3.4% versus 3.5% market forecasts and the previous mark whereas Average Hourly Earnings improved to 4.4% YoY from 4.3% prior (revised) and analysts’ estimations of 4.2%.

Following the upbeat US employment report, St. Louis Federal Reserve President James Bullard, who supported the 25 basis point rate hike that the Fed took last week, called it "a good next step." The policymaker cited significant amount of inflation in the economy and "very tight" labor market to back his hawkish bias.

It should be noted, however, that Federal Reserve’s (Fed) dovish rate hike poured cold water on the face of DXY optimists in the last week.

Recently, US Treasury Secretary Janet Yellen on Sunday issued a stark warning that a failure by Congress to act on the debt ceiling could trigger a "constitutional crisis" that also would call into question the federal government's creditworthiness, per Reuters.

Elsewhere, US Senior Loan Officer Opinion Survey on Bank Lending Practices is up for release during the week and will be eyed for the banking crisis update as markets fear grim US bank conditions, which in turn can prod the sentiment and allow the US Dollar to lick its wounds.

Amid these plays, Wall Street closed positive and the US Treasury bond yields recovered on Friday. However, the bond coupons remain depressed and exert downside pressure on the US Dollar Index ahead of the key week comprising the US inflation data for April.

“With respect to the looming April CPI release, the consensus expects that headline CPI rose 0.4% m/m with core up 0.3% m/m. For what it’s worth, the Cleveland Fed’s inflation Nowcast estimates April headline inflation rose 0.6% m/m with core up 0.5% m/m. If the April inflation data are strong, then there is a growing probability that the FOMC will have to revise up its end 2023 inflation forecasts,” said ANZ.

Technical analysis

US Dollar Index (DXY) bears need validation from a three-week-old ascending support line, near 101.20 by the press time, to challenge a yearly low of around 100.80. That said, the MACD signals suggest that the DXY bulls are running out of steam.