US Dollar Index: DXY licks its wounds at five-week low near 102.00 as US data weighs on Fed concerns

• US Dollar Index seesaws at monthly low after falling the most since early March.
• Unimpressive US Retail Sales growth, mixed activity data and downbeat Jobless Claims to push back hawkish Fed concerns.
• Firmer sentiment, ECB moves also weigh on US Treasury bond yields and DXY.
• US consumer sentiment numbers, inflation clues eyed for further directions as hawkish Fed bets ease.

US Dollar Index (DXY) bears take a breather at the lowest levels in over a month, flirting with the 102.00 round figure amid the early hours of Friday’s Asian session. In doing so, the greenback’s gauge versus six major currencies justifies the market’s easing hawkish concerns for the Federal Reserve’s July rate hike, as well as the risk-on mood, ahead of mid-tier US data.

As per the latest readings of the CME’s FedWatch Tool, market players place nearly 67% bets on the July Fed rate hike of around 25 basis points (bps). The same depicts the traders’ lack of conviction in the Federal Reserve’s (Fed) almost clear signals for a hawkish move in July amid mostly downbeat US data.

That said, US Retail Sales growth marks an increase of 0.3% for May versus -0.1% expected and 0.4% previous readings while the Core readings, mean Retail Sales ex Autos, match 0.1% market forecasts for the said month, compared to 0.4% prior. Further, NY Fed Empire State Manufacturing Index jumps to 6.6 in June versus -15.1 expected and -31.8 prior whereas Philadelphia Fed Manufacturing Index drops to -13.7 for the said month from -10.4 prior and compared to -14 market forecasts. Additionally, US Industrial Production for May cools down to -0.2% against 0.1% estimated and 0.5% prior while Initial Jobless Claims reprints the upwardly revised figures of 262K for the week ended on June 09 versus 249K expected.

It’s worth noting that the European Central Bank’s (ECB) victory over the Fed, by announcing 25 basis points (bps) interest rate hikes and suggesting more such moves ahead, also weighed on the US Dollar and the DXY. Furthermore, the PBoC cut its one-year interest rate for the first time in 10 months, by 10 basis points (bps), which in turn bolstered the market’s sentiment and exert downside pressure on the US Dollar Index.

US Dollar Index previously cheered the Fed’s hawkish halt but the aforementioned catalysts propelled the risk-on mood and drowned the US Treasury bond yields to recall the DXY bears. With this, Wall Street benchmarks rallied more than 1.0% each whereas the US 10-year Treasury bond yields plummeted to 3.72%.

Looking ahead, the preliminary readings of the Michigan Consumer Sentiment Index (CSI) for June and five-year inflation expectations will be in the spotlight as the Fed hawks find less acceptance. Additionally, the Bank of Japan (BoJ) Monetary Policy Meeting and Fed talks will also be crucial for clear directions

Technical analysis

A daily closing below the 50-DMA level of around 102.60 directs DXY bears toward an upward-sloping support line from mid-April, at 101.55 by the press time.