US Dollar Index: DXY steadies above 103.00 despite firmer yields, risk-off mood, US NFP in the spotlight

• US Dollar Index picks up bids to reverse Thursday’s pullback from three-week high.
• Market sentiment worsens on China data, fears of hawkish central bank moves despite mixed data.
• US employment clues appear mostly upbeat and fuel Treasury bond yields to refresh multi-month high.
• Strong US NFP needed to confirm Fed’s rate hike past July and witness firmer DXY amid hawkish FOMC Minutes.

US Dollar Index (DXY) consolidates the previous day’s heavy losses, the most in a week, while printing mild gains around 103.15-20 amid Friday’s Asian session. In doing so, the greenback’s gauge versus the six major currencies portrays the pre-data positioning for the all-important US employment figures amid firmer US Treasury bond yield and risk aversion.

That said, the market’s risk aversion escalates as mostly upbeat US jobs data underpin hawkish Fed bets, even as recession fears loom and the China-linked headlines aren’t impressive. Additionally, the US-China tension is an extra burden for the sentiment, which in turn puts a floor under the US Dollar Index.

That said, the recently firmer US employment clues underpin hawkish hopes about the Federal Reserve (Fed). However, the odds of witnessing a policy pivot have been on the spike after the US central bank paused the rate lift trajectory in July. The same joins the market’s cautious mood ahead of the data to prod the DXY bulls.

On Thursday, US ADP Employment Change marked the largest one-month increase since February 2022, to 497K for June versus 228K expected and 267K prior (revised). That said, the ISM Services PMI also improved to 53.9 for the said month from 50.3 in May, versus the market expectation of 51.0. Further, the Challenges Job Cuts also slumps to 40.709K from 80.089K previous readings. However, the JOLTS Job Openings drops to 9.8M from 10.103M, compared to analysts’ estimation of 9.93M. It should be noted that the Initial Jobless Claims also rises to 248K for the week ended on June 30, versus 245K expected and 236K previous readings (revised).

It should be noted that US Treasury Secretary Janet Yellen is in China to address “unfair practices” termed by the Biden administration per Reuters. The policymaker will meet China's Premier Li Qiang and former economy tsar Liu He, who is a close confidant of President Xi Jinping, the news said.

Amid these plays, Wall Street closed in the red and the US Treasury bond yields refreshed a multi-day high, before retreating a bit.

Moving on, DXY traders will pay attention to the US Nonfarm Payrolls (NFP), expected to ease to 225K from 339K, for clear directions. Should the jobs report arrive as positive, the US Dollar can witness further upside.

Technical analysis

US Dollar Index bulls remain hopeful unless witnessing a daily closing below the 100-DMA support, around 103.00 by the press time.