US Dollar Index: Yields, inflation expectations weigh on DXY near 104.00, US CB Consumer Confidence eyed

• US Dollar Index stays depressed after reversing from 11-week high.
• Yields, inflation expectations drop but activity data flash mixed signals to prod DXY bears.
• Absence of hawkish surprise from Fed, China-linked optimism exerts downside pressure on Greenback ahead of top-tier data.
• US CB Consumer Confidence can offer intraday directions but NFP, Fed’s preferred inflation gauge are the key.

US Dollar Index (DXY) remains on the back foot around 103.95 during the early hours of Tuesday’s Asian session, after reversing from an 11-week high to snap a two-day winning streak the previous day. In doing so, the Greenback’s gauge versus the six major currencies teases sellers ahead of the top-tier US data. However, the market’s cautious mood ahead of the releases and a light news line prods the DXY traders of late.

That said, the downbeat US Treasury bond yields joined the weakness in the US inflation clues to weigh on the US Dollar Index the previous day, especially amid China-linked optimism. Additionally, the Fed officials’ inability to please markets with a major hawkish surprise during the annual Jackson Hole Symposium also contributed to the Greenback’s weakness.

It’s worth noting that Fed Chair Jerome Powell showed readiness for rate hikes while pushing back rate cut bias during his key Jackson Hole speech. However, the policymaker also highlighted the data dependency and hence increased the importance of the incoming statistics, as well as amplified uncertainty about the US central bank’s next moves, which in turn weighed on the DXY. It should be noted that Cleveland Fed Bank President Loretta Mester favored a rate hike, even if not in September, while the odds of witnessing an increase in the Fed rate in November improved of late, per the CME’s FedWatch Tool.

Elsewhere, the inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data, reverse Friday’s corrective bounce while declining to the fresh lows in five weeks.

Furthermore, the US Dallas Fed Manufacturing Business Index improved to -17.2 for August versus -21.6 expected and -20.0 prior. It’s worth noting that the details of the activity gauge were mixed as the new orders and prices paid for raw materials increased but the finished goods prices eased.

It should be noted that China’s halving of the stamp duty on stocks trading joined a Wall Street Journal (WSJ) piece suggesting Chinese Communist Party Chairman Xi Jinping’s indirect push for stimulus to favor market sentiment and offered additional negatives for the US Dollar Index.

Amid these plays, Wall Street closed on the green side for the second consecutive day while the US 10-year Treasury bond yields dropped three basis points (bps) to 4.20% and the two-year counterpart declined half a percent to 5.5% at the latest. That said, the US 10-year Treasury bond yields remain pressured near 4.19% by the press time whereas the S&P 500 Futures lack clear directions as we write.

Moving on, the cautious mood ahead of today’s US Conference Board’s (CB) Consumer Confidence Index for August, expected at 116.2 versus prior 117.00, will prod the Greenback and the markets. Above all, major attention will be given to the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditure (PCE) Price Index for July and Nonfarm Payrolls (NFP) for August.

Technical analysis

A six-week-old ascending support line around 103.65 precedes the tops marked in late June and early July around 103.55 to restrict the immediate downside of the US Dollar Index (DXY). Alternatively, a downward-sloping resistance line from March 15, close to 104.20 at the latest, guards the nearby upside of the DXY.