US Dollar Index: DXY grinds near mid-103.00s as markets await US inflation, Fed

• US Dollar Index defends Friday’s corrective bounce but fails to gain traction after two-week downtrend.
• Reassessment of Fed bets, inflation clues prods DXY bears ahead of the top-tier data, events.
• US CPI needs to confirm market’s bets on no Fed rate hike in June.

US Dollar Index (DXY) aptly portrays the pre-Fed anxiety as it seesaws around 103.50 amid early Monday in Asia, after declining in the last two consecutive weeks. It’s worth noting that a light calendar and reassessment of the Fed bets also put a floor under the greenback’s gauge versus six major currencies even if bears remain hopeful of late.

Although the recent US statistics have been favoring a halt in the Federal Reserve’s (Fed) rate hike trajectory, as seen from the market’s bets on the Fed’s rate hike in June, the inflation woes remain on the table to keep the Fed hawk hopeful. As a result, Tuesday’s US Consumer Price Index (CPI) for May, expected to ease to 4.2% YoY from 4.9% prior, becomes crucial and allows the DXY traders to lick their wounds ahead of the outcome.

With this in mind, Analysts at ANZ said, “US May CPI data will be published just ahead of the FOMC decision and that is adding some uncertainty to the immediate call – a strong core print could force the FOMC’s hand. The median market estimate expects that core inflation rose 0.4% m/m with the headline rate rising 0.2% owing to weaker energy costs.”

It should be noted that the downbeat prints of the US activity numbers for May joined disappointing employment clues to weigh on the US Dollar. That said, the latest United States Initial Jobless Claims jumped to the highest levels since September 2021 whereas the US ISM Services PMI, S&P Global PMIs and Factory Orders also printed softer outcomes for May and pushed back the Fed hawks, which in turn weighed the US Dollar.

Elsewhere, fears of economic slowdown join softer statistics from Europe and China to allow the US Dollar Index bears to take a breather amid a light calendar and a lack of major data/events.

It’s worth mentioning that the US Treasury bond yields grind higher and allow the DXY bulls to remain hopeful even as Wall Street and S&P500 Futures prod greenback bulls by printing upbeat outcomes.

Moving on, a thin macro line may challenge momentum traders but concerns about the US inflation and Fed can direct the DXY.

Technical analysis

A sustained downside break of the 21-DMA, around 103.65 by the press time, directs US Dollar Index (DXY) to the 100-DMA support of around 103.05.