US Dollar Index: DXY dribbles at seven-week top near 103.00 as markets recheck US debt-ceiling optimism

• US Dollar Index fades upside momentum after rising to late March highs.
• US policymakers appear hopeful of getting a deal to avoid default ahead of debt-ceiling expiry.
• Fewer details on the US debt limit negotiations, doubts on retail sales raised by Target Corp prod DXY bulls.
• Light calendar may allow US Dollar Index to pare recent gains at multi-day top.

US Dollar Index (DXY) buyers struggle to keep the reins at the highest levels in seven weeks during early Thursday in Asia. That said, the greenback’s gauge versus the six major currencies grinds near 102.90 while reversing the late Wednesday’s pullback from a multi-day high.

The DXY previously cheered optimism surrounding no US default, as well as hawkish comments from the Federal Reserve (Fed) officials, to rise to nearly two-month top. However, the latest doubt on the policymakers’ ability to agree on a wide range of details, as well as fears of easing US retail sales, seem to prod the US Dollar Index buyers.

Global markets turned optimism after a brief meeting between US President Joe Biden and House Speaker Kevin McCarthy conveyed that the policymakers are ready to compromise for a greater benefit. While portraying the same, US House Speaker Kevin McCarthy said in an interview on CNBC, "Now we have an opportunity to find common ground but only a few days to get the job done." Further, US President Joe Biden said that he is confident that they will be able to reach a budget agreement and noted that it would be catastrophic if the US failed to pay bills, per Reuters. "Will have a news conference on Sunday on the debt issue,” added US President Joe Biden.

However, the clock it ticking and the US Treasury Department has already signaled early June expiry of the debt-limit, as well as cited ‘catastrophic’ default of the US, if policymakers fail to strike a deal of multiple issues that can help solve the debt-limit problem. With this, markets reassess the previous optimism and prod the DXY bulls.

On the other hand, Reuters said that US retail sales have remained resilient despite higher prices but consumers have been careful about their spending, hurting companies such as Target and Home Depot, whose merchandise largely consists of discretionary products.

Previously, upbeat US data allowed the Federal Reserve (Fed) officials to reconfirm their hawkish bias about the monetary policy. On Wednesday, US Housing Starts came out as unimpressive with 1.401M figures for April versus 1.4M expected and 1.371M prior (revised). Alternatively, the Building Permits for the said month eased to 1.416M from 1.437M edited previous readings and market forecasts. Before that, upbeat US Retail Sales and Industrial Production details for April allowed the Federal Reserve (Fed) officials to remain hawkish and prod the risk-on mood. The latest among them were Federal Reserve Bank of Chicago President Austan Goolsbee and Atlanta Fed President Raphael Bostic who reiterate inflation fears and favored the US Dollar Index bulls.

Amid these plays, S&P 500 Futures print mild losses despite the upbeat Wall Street close whereas the US Treasury bond yields also remain sidelined at the multi-day top.

With this, the DXY may witness hardships in extending the latest run-up amid a light calendar. However, risk catalysts are the key to watch for clear directions.

Technical analysis

A daily close beyond the six-week-old horizontal resistance, around 102.75, struggles with the 100-DMA hurdle, near 102.90, to convince the DXY bulls. That said, nearly overbought RSI, however, suggest a pullback in prices.