US Dollar Index: Joint central bank efforts tease DXY bulls below 104.00 ahead of Fed

• US Dollar Index picks up bids to snap two-day losing streak, mildly bid of late.
• Five key central banks to join Fed in infusing US Dollar liquidity via currency swaps.
• UBS-Credit Suisse deal also enables Treasury bond yields to stabilize after rocky week.
• Fed Chair Powell’s comments on banking sector fallouts, PMIs for March will be crucial for clear directions.

US Dollar Index (DXY) cheers the weekend news suggesting more liquidity in the market while tracing the recovery in the Treasury bond yields to snap a two-day downtrend near 103.80 as the key week begins. In doing so, the greenback’s gauge versus the six major currencies cheers the hopes of more US Dollar-linked liquidity, as well as easing fears from the latest banking sector fallouts, ahead of Wednesday’s key Federal Open Market Committee (FOMC) monetary policy meeting.

During the weekend, Sky News reported the news of the UBS-Credit Suisse takeover on Sunday evening while stating that UBS will pay 3 billion Swiss francs (£2.6bn) to acquire Credit Suisse. The news further adds that UBS has agreed to assume up to 5 billion Francs (£4.4bn) in losses, and 100 billion Swiss Francs (£88.5bn) in liquidity assistance will be available to both banks.

On the same line were the comments from the US Federal Deposit Insurance Corporation (FDIC) mentioning that the deposits of Signature Bridge Bank will be assumed by a subsidiary of New York Community Bancorporation.

Furthermore, the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, and Swiss National Bank are all up for announcing joint actions to provide more liquidity via standing US dollar liquidity swap line arrangements.

The news also contributes to the market’s hopes of more liquidity and allows the US Treasury bond yields to pare the last week’s heavy losses. That said, the US two-year Treasury bond yields dropped the most in three years in the last week. That said, the US 10-year Treasury bond yields rose four basis points (bps) to 3.47% at the latest while S&P 500 Futures also rise 0.70% intraday even after a downbeat Wall Street closing.

In the last week, the banking sector rout drowned the market sentiment but the US Dollar and the Swiss Franc had to fall amid downbeat Treasury bond yields, as well as the SNB’s role in defending Credit Suisse. It should be noted that the downbeat US data added strength to the greenback’s south run.

That said, the US Consumer Price Index (CPI) for February matched 6.0% YoY market expectations versus 6.4% prior while the Retail Sales also marked -0.4% MoM figure versus -0.3% expected and 3.2% previous readings. Further, US Consumer Confidence per the University of Michigan's (UoM) Consumer Confidence Index dropped to 63.4 for March versus 67.0 expected and prior. The details suggest that the year-ahead inflation expectations receded from 4.1% in February to 3.8%, the lowest reading since April 2021, while the 5-year counterpart dropped to 2.8% from 2.9% previous reading. Furthermore, US Industrial Production remained unchanged in February versus the 0.2% expected and January's 0.3% (revised from 0%) expansion.

Moving on, risk catalysts will be more important for the US Dollar Index traders ahead of Wednesday’s FOMC decision. Additionally, preliminary readings of the US March month S&P Global PMIs will also be important for DXY traders to watch for fresh impulse.

Technical analysis

US Dollar Index remains sidelined between an ascending support line from the mid-February and a one-week-old descending resistance line, respectively near 103.60 and 104.40.