US Dollar Index: DXY prods two-day losing streak near 101.00 with eyes on ECB, US GDP

• US Dollar Index remains sidelined after declining in the last two consecutive days from the highest level in a fortnight.
• Federal Reserve announces 0.25% rate hike, as expected, but leaves door open for September rate hike.
• Cautious mood ahead of US Q2 GDP, ECB also prod DXY bears amid sluggish session.
• Yields, US Dollar stabilizes as interest rate futures suggest increased odds for September rate hike after Powell’s speech.

US Dollar Index (DXY) licks its wounds near 101.00 as traders take a breather after a volatile Wednesday while bracing for the top-tier data/events amid early Thursday. In doing so, the greenback’s gauge versus the six major currencies takes clues from the sluggish yields and the market’s increasing hawkish bets on the Federal Reserve’s (Fed) next move even if the US central bank failed to impress the greenback buyers with its 25 basis points (bps) rate hike on Wednesday.

The US Federal Reserve (Fed) announced the widely anticipated interest rate hike toward the multi-year high in the range of 5.25%-5.50% on Wednesday. Following the rate decision, Fed Chairman Jerome Powell tried to lure the hawks by showing readiness for a September rate hike as he said, that the June inflation Consumer Price Index was welcomed but “was only one month's report.” It should be noted that the rejection of recession fears was also an effort to please the US Dollar buyers but failed.

Following the Fed announcements and Powell’s speech, interest rate futures marked an increasing push towards a September rate hike as the CME’s FedWatch Tool shows 23% chances of the same versus 21% marked on Tuesday and 13.7% a week ago.

It should be noted that the Conference Board’s (CB) Consumer Confidence Index for July has been positive but the housing numbers for June are mixed. That said, the previously released inflation and employment clues haven’t been impressive and prod the US Dollar Index buyers. Even so, the International Monetary Fund (IMF) raised the US economic growth forecast for 2023 to 1.8% from 1.6% forecasted in April, which in turn challenges the DXY sellers ahead of the first readings of the US Gross Domestic Product (GDP) for the second quarter (Q2). That said, the US Q2 GDP Annualized is expected to ease to 1.8% from 2.0%.

Apart from the US GDP concerns, the expectations that the European Central Bank (ECB) will also fail to lure the Euro buyers despite announcing the widely anticipated 0.25% rate hike also tease the US Dollar Index buyers ahead of the event. Additionally important to watch is the US Durable Goods Orders for June, likely easing to 1.0% from 1.8% prior (revised).

It’s worth noting that the latest challenges for the US-China ties jostle with headlines from Beijing suggesting more stimulus, which in turn defends the market’s optimists and test the US Dollar bulls. While portraying the mood the S&P500 Futures remain positive around 4,600 even as Wall Street benchmarks edged lower while the US 10-year Treasury bond yields marked the first daily loss in three by closing around 3.87%.

Technical analysis

In additional to the early-week reversal from the 21-DMA hurdle, around 101.52 by the press time, the downside break of a one-week-old rising support line, now immediate resistance near 101.15, keeps the US Dollar Index bears hopeful.