US Dollar Index bounces off seven-month low ahead of Fed Chair Powell’s speech

• US Dollar Index steadies after refreshing multi-day low.
• Hawkish Fedspeak, US inflation expectations probed DXY bears amid light calendar.
• US data, China-linked optimism and downbeat Treasury bond yields previously weighed on US Dollar Index.
• Fed Chair Powell needs to defend policy hawks to recall DXY buyers ahead of US inflation.

US Dollar Index (DXY) makes rounds to 103.15-20 as sellers pause after a two-day downtrend around the lowest level since June 2022. That said, the greenback’s gauge versus the six major currencies refreshed a multi-day low the previous day as the market’s risk-on mood joined hopes of easy Fed rate hikes. However, the recently hawkish comments from the US Federal Reserve (Fed) officials and cautious mood ahead of the key data/events seemed to have triggered the quote’s latest stoppage in further declines.

That said, China’s reopening of the international borders after a three-year halt joined Beijing’s readiness for stimulus and early signals of a shopping spree ahead of the Chinese New Year holiday season to underpin the firmer sentiment on Monday.

On the other hand, Friday’s US economics, mainly concerning the wage growth and ISM Services PMI for December, raised speculations that the Federal Reserve (Fed) finally has the upper hand in taming inflation, suggesting a pause to aggressive rate hikes. The same weighed on the US Treasury bond yields and the US Dollar even as the latest comments from the Fed officials restrict the Greenback’s latest downside.

It should be noted that Atlanta Federal Reserve bank president Raphael Bostic said on Monday that it is ''fair to say that the Fed is willing to overshoot.'' On the same line, San Francisco Federal Reserve Bank President Mary Daly stated that they are determined, united, and resolute to bring inflation down. Additionally, the Federal Reserve Bank of New York's monthly Survey of Consumer Expectations showed on Monday that the US consumers' one-year inflation expectation declined to 5% in December from 5.2% prior. Alternatively, the three-year ahead expected inflation remained unchanged at 3% and the five-year ahead expected inflation edged higher to 2.4% from 2.3%.

Against this backdrop, Wall Street closed mixed and probed the S&P 500 Futures while the US 10-year Treasury yields dropped five basis points to 3.51% before snapping the three-day downtrend around 3.53% by the press time.

The DXY traders should wait for Fed Chairman Jerome Powell’s speech considering the recent hawkish comments from other Fed policymakers and Thursday’s looming US Consumer Price Index (CPI).

Technical analysis

An ascending support line from May 2021, around 102.90 by the press time, restricts the short-term US Dollar Index downside.