US Dollar Index: DXY slides towards 104.00 as Fed bets simmer, sentiment improves

• US Dollar Index renews intraday low, braces for minor weekly loss.
• Softer US inflation expectations, mixed US data join cautiously optimistic markets to probe DXY bulls.
• Yields, hawkish Fed bets put a floor under the US Dollar Index price.
• Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectations eyed for fresh impulse.

US Dollar Index (DXY) holds lower ground near 104.35 after snapping a two-day winning streak the previous day. With this, the greenback’s gauge versus the six major currencies brace for minor weekly loss as traders brace for the last clues for the next week’s Federal Reserve (Fed) monetary policy meeting.

That said, the mixed US data joins downbeat inflation expectations and hopes of no financial crisis like 2008 seem to weigh on the US Dollar. However, expectations that the Fed will be able to keep its monetary policy tighter for longer join the upbeat Treasury bond yields to put a floor under the price.

Talking about the US data, Weekly Initial Jobless Claims dropped to 192K for the week ended on March 10 versus 205K expected and 212K prior whereas the four-week average figure dropped to 196.5K versus 197.25K prior (revised). Further, Housing Starts jumped to 1.45M in February from 1.321M previous reading and 1.31M analysts’ estimations while the Housing Starts jumped to 1.524M during the said month versus 1.34M expected and 1.339M prior. Additionally, the Philadelphia Fed Manufacturing Survey gauge came in as -23.2 compared to -14.5 consensus and -24.3 prior.

On the other hand, the US inflation expectations per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) remain pressured around the multi-day low and challenge the policy hawks, as well as the US Dollar bulls, of late. That said, the 10-year breakeven from the FRED data dropped to a fresh six-week low of 2.22% by the end of Thursday’s North American trading session during a two-day downtrend. However, the two-year counterpart revisits the week-start of 2.26%, previously poked in early February, while dropping for the second consecutive day.

It should be noted that the Fed fund futures recently bolster the case of the US central bank’s 0.25% rate hike in the next week’s monetary policy meeting.

Elsewhere, comments from Saudi National Bank's Chairman, Ammar Al Khudairy, conveying the “sound” conditions of Credit Suisse join the major US banks’ efforts to help California-based First Republic Bank to avoid a liquidity crunch to favor the risk-on mood. On the same line was the news that Credit Suisse eyes borrowing up to CHF50 billion from the Swiss National Bank (SNB) to strengthen liquidity, as well as Reuters quoting anonymous sources to confirm that the US banks are less vulnerable to the Credit Suisse debacle. Furthermore, US Treasury Secretary Janet Yellen’s assurance over the US banking industry’s health and European Central Bank’s (ECB) 50 bps rate hike, matching expectations, also favored the sentiment and allowed the latest run-up in the AUD/USD prices.

Against this backdrop, United States 10-year and two-year Treasury bond yields are down for the second consecutive week despite the previous day’s rebound from the multi-day low. Further, Wall Street closed in the green with more than 1.0% gains by each of the benchmark indices while S&P 500 Futures print mild gains of late.

Looking ahead, preliminary readings of the US Michigan Consumer Sentiment Index for March and the UoM 5-year Consumer Inflation Expectations for the said month will be important for clear directions.

Technical analysis

Failure to cross the 100-DMA, around 104.85 by the press time, directs US Dollar Index (DXY) towards the 50-DMA retest, close to 103.45 at the latest.