USD Index gives away gains and drops to 101.40 on soft CPI

• The index comes under renewed pressure on softer CPI.
• US yields reverse the multi-day recovery across the curve.
• US headline, core inflation eased further in April.

The greenback sets aside two daily gains in a row and returns to the 101.40/30 band when tracked by the USD Index (DXY) on Wednesday.

USD Index appears offered post-CPI

The index rapidly gives away earlier gains and recedes to the negative territory soon after US inflation figures printed another soft readings in April.

Indeed, inflation measured by the headline CPI rose at annualized 4.9% in April and the Core CPI climbed 5.5% over the last twelve months. On a monthly basis, both gauges rose 0.4%.

The continuation of the disinflationary way in US consumer prices sabotages the new bounce back in the greenback and motivates the USD Index (DXY) to switch ongoing increases, as the probability of a respite in the Fed's standardization cycle accumulates further footing.

Earlier in the session, MBA Mortgage Applications expanded 6.3% in the week to May 5. Later in the NA session, April’s Monthly Budget Statement will close the daily calendar.

What to look for around USD

The index now loses momentum, as earlier gains evaporate on the back of softer-than-expected US inflation prints for the month of April.

The index seems to be facing downward pressure in light of the recent indication that the Fed will probably pause its normalization process in the near future. That said, the future direction of monetary policy will be determined by the performance of key fundamentals (employment and prices mainly).

Favouring an impasse by the Fed appears the persevering disinflation – despite consumer prices remain well above the target – incipient cracks in the labour market, the loss of momentum in the economy and rising uncertainty surrounding the US banking sector.

Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Monthly Budget Statement (Wednesday) – Producer Prices, Jobless Claims (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict. Debt ceiling issue.

USD Index relevant levels

Now, the index is down 0.21% at 101.43 and faces initial contention at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level). On the other hand, the break above 101.83 (weekly high May 9) would open the door to 102.40 (monthly high May 2) and then 102.80 (weekly high April 10).