US Dollar Index: DXY traces yields to pare weekly gains at multi-day top above 103.00

• US Dollar Index consolidates recent gains at two-month high but stay well-set for the fifth weekly upside.
• Firmer US data, yields previously fuelled DXY before the market’s stabilization amid light calendar.
• China fears, shift in Fed concerns keep US Dollar Index buyers hopeful but correction in yields can prod Greenback.

US Dollar Index (DXY) bulls take a breather at a two-month high, marked the previous day, as it retreats to 103.38 amid early Friday in Asia. In doing so, the Greenback’s gauge versus the six major currencies tracks the US Treasury bond yields to pare the weekly gains, the fifth in a row, amid a light calendar and a silent news line.

That said, the US 10-year Treasury bond yields eased around three basis points (bps) in the last hour to 4.278%, reversing from the highest level since 2007 marked on Thursday amid growing doubts about the Fed’s policy pivot and China woes.

The recently firmer United States statistics and the hawkish Fed Minutes could be linked to a shift in the market’s dovish bias about the US central bank.

Talking about the data, US Philadelphia Fed Manufacturing Survey marked the strongest print since April 2022, as well as the first positive outcome in a year, while rising to 12.0 for August from -13.5 prior and -10.0 expected. On the same line, the US Initial Jobless Claims also edged lower to 239K for the week ended on August 11 versus a revised up 250K prior and the market expectations of 240K. It should be noted that the four-week average of the Initial Jobless Claims and the weekly figures of the Continuing Claims for the period ended on August 04 edged higher. Earlier in the week, the US Industrial Production and Retail Sales for July marked surprising growth but the housing numbers were mixed.

On the other hand, the latest Fed Minutes showed that most policymakers preferred supporting the battle again the ‘sticky’ inflation, despite being divided on the imminent rate hike, which in turn challenges the market’s previous policy pivot concerns about the US central bank and favors the Greenback. Even so, the CME’s FedWatch Tool signals a nearly 86% chance of the Fed’s no rate hike in September and prods the US Dollar bulls.

Elsewhere, downbeat concerns about China join the recent shift in the Fed bias and weigh on the sentiment, which in turn puts a floor under the US Treasury bond yields and the DXY. Late on Thursday, China’s second-large realtor, as well as the world's most heavily indebted property developer, Evergrande filed for protection from creditors in a US bankruptcy court on Thursday, per Reuters. The same escalate fears surrounding the world’s second-largest economy, as well as the global economic transition, as it battles with the slowing economic recovery and fuels concerns about the financial health of China’s biggest realtor, namely Country Garden. Amid these fears, top-tier US banks like JP Morgan and Barclays have recently cut China growth forecasts.

As a result, the S&P500 Futures trace Wall Street’s losses and challenge DXY sellers despite the quote’s latest retreat.

Looking ahead, an absence of major data/events ahead of the top-tier central bankers’ speeches at the Jackson Hole Symposium may allow the US Dollar Index to pare recent gains. However, the risk-off mood and yields keep the DXY buyers hopeful.

Technical analysis

A U-turn from the key resistance line stretched from early March, around 103.60 by the press time, directs the US Dollar Index (DXY) toward the 200-DMA support surrounding 103.20. Adding strength to the 103.20 support is an ascending trend line from July 18.