US Dollar Index fades two-day uptrend near 103.00, Fed’s preferred inflation, banking news eyed

• US Dollar Index pares recent gains with mild losses amid cautious optimism, downbeat yields.
• Fears of US recession, challenges to hawkish Fed concerns probe DXY bulls.
• US Core PCE Price Index, risk catalysts are the key for fresh impulse.

US Dollar Index (DXY) teases sellers around 103.00, following a two-day winning streak, amid market’s consolidation during early Monday. In doing so, the greenback’s gauge versus six major currencies remain pressured after two-week downtrend as the US Treasury bond yields remain pressured.

US 10-year Treasury bond yields struggle to defend the late Friday’s corrective bounce off the lowest levels since September 2022 amid mixed concerns about the banking sector and the US Federal Reserve’s (Fed) next move. However, the dovish comments from Minneapolis Fed President Neel Kashkari and headlines surrounding Silicon Valley Bank (SVB) weigh on the US Dollar of late, mainly due to a mild rebound in the market’s sentiment.

Fed’s Kashkari said on the CBS show Face the Nation that recent stress in the banking sector and the possibility of a follow-on credit crunch brings the US closer to recession. On the other hand, headlines from Bloomberg also contributed to the risk-on mood and weighed on the US Dollar. “First Citizens BancShares Inc. is in advanced talks to acquire Silicon Valley Bank after its collapse earlier this month, according to people familiar with the matter,” said Bloomberg.

Previously, Reuters’ news about Russia allowed the US Dollar to grind higher before the latest fall. “The North Atlantic Treaty Organization (NATO) NATO on Sunday criticised Vladimir Putin for what it called his ‘dangerous and irresponsible’ nuclear rhetoric, a day after the Russian president said he planned to station tactical nuclear weapons in Belarus,” per Reuters.

It’s worth noting that mostly upbeat data and hawkish Fedspeak triggered the US Dollar’s rebound during late Friday. That said, US Durable Goods Orders for February dropped by 1.0% versus January's fall of 5% (revised from -4.5%) and the market expectation for an increase of 0.6%. Details suggested that the figure for Durable Goods Orders ex Defense and ex Transportation were also downbeat but Nondefense Capital Goods Orders ex Aircraft came in firmer-than-expected 0.0% to 0.2%, versus 0.3% prior. Moving on, the preliminary readings of the US S&P Global PMIs for March came in firmer as the Manufacturing gauge rose to 49.3 from 47.3 in February, versus 47.0 expected, while Services PMI rose to 53.8 from 50.6 prior and 50.5 expected. With this, the S&P Global's Composite PMI increased to 53.3 from 50.1 in February, versus 50.1 market forecasts.

Following the data, Atlanta Fed President Raphael Bostic told NPR that it was not an easy decision to raise the policy rate while also adding that he is not expecting the economy to fall into recession. Further, St. Louis Federal Reserve President James Bullard, a policy hawk, said on Friday that the response to the bank stress was swift and appropriate, allowing the monetary policy to focus on inflation, per Reuters. The policymaker also added that the projections suggest one more rate hike that could be at the next FOMC meeting or soon after.

Against this backdrop, S&P 500 Futures trace Wall Street’s mild closing while the US Treasury bond yields remain pressured.

Looking ahead, Fed talks and second-tier US data may entertain DXY traders ahead of the Fed’s preferred inflation gauge, namely the Core Personals Consumption Expenditure (PCE) Price Index. Should the inflation numbers print strong outcomes, the greenback has scope for recovery.

Technical analysis

A three-week-old bearish channel keeps US Dollar Index sellers hopeful unless the quote rises past 103.65 hurdle.