US Dollar Index: DXY steadies around 102.00 as Fed hawks flex muscles ahead of US inflation

• US Dollar Index prods two-day losing streak but stays defensive ahead of top-tier data/events.
• Hawkish comments from Fed’s bowman, cautious mood before US inflation put a floor under DXY price.
• Upbeat prints of US CPI, PPI becomes necessary for Greenback buyers to keep the reins.

US Dollar Index (DXY) stays defensive around 102.00 during Monday’s sluggish Asian session, while challenging a two-day losing streak, as well as rising in the last three consecutive weeks. In doing so, the Greenback’s gauge versus the six major currencies struggles to cheer the recently hawkish Fed comments amid mixed data. Further, the DXY also portrays the market’s cautious mood ahead of the key US inflation data for July.

During the weekend, Federal Reserve (Fed) Governor Michelle Bowman said that the Fed should remain willing to raise the federal funds rate at a future meeting if the incoming data indicate that progress on inflation has stalled. Previously, Atlanta Federal Reserve Bank President Raphael Bostic said on Friday to Bloomberg, that the central bank is likely to keep monetary policy in a restrictive territory well into 2024. On the contrary, Chicago Fed President Austan Goolsbee stated that they should start thinking about how long to hold rates.

It’s worth observing that the US credit rating downgrade bolstered the Greenback’s haven demand despite mixed data. That said, the US employment report posted a softer-than-expected Nonfarm Payrolls (NFP) figure of 187K, versus 185K prior (revised) and 200K market forecasts, whereas the Unemployment Rate eased to 3.5% from 3.6% expected and previous readings. Further, the Average Hourly Earnings reprinted 0.4% MoM and 4.4% YoY numbers by defying the expectations of witnessing a slight reduction in wage growth.

Also notable is the fact that the ISM Manufacturing PMI for July improved a bit but the more important Services PMI dropped for the said month. Additionally, US Factory Orders edged higher for June and so did the second-tier employment-linked data like Nonfarm Productivity and JOLT Job Openings. However, the Q2 Unit Labor Cost eased and troubled favoring the Fed’s September rate hike.

Against this backdrop, the market’s bets on the Fed’s September rate hike eased from 20.0% to 13% on a weekly basis, per the CME’s FedWatch Tool. Furthermore, the latest retreat in the US Treasury bond yields from a multi-month high also prods the DXY bulls.

Looking ahead, US inflation numbers, namely the Consumer Price Index (CPI) and Producer Price Index (PPI) for July, become crucial for the DXY traders to watch for clear directions as market players appear confused about the Fed’s September rate hike.

Technical analysis

Despite the latest inaction, the US Dollar Index stays below a convergence of the 50-DMA and 100-DMA, around 102.35, which in turn joins recently downbeat oscillators to direct the DXY sellers toward a three-week-old rising support line, at 101.50 by the press time.