US Dollar Index: DXY licks US inflation inflicted wounds near mid-101.00s with mixed feelings

US Dollar Index (DXY) stays defensive near 101.40 during the early hours of Thursday’s trading, after snapping a two-day uptrend with the biggest daily loss in a week. In doing so, the greenback’s gauge versus the six major currencies portrays the market’s mixed feelings from the US inflation data, especially amid looming US default woes and banking fears.

Although the US inflation marked the first fall past 5.0% in two years, the details weren’t that negative and seems to keep the Federal Reserve (Fed) away from the rate cut move.

That said, US Consumer Price Index (CPI) eased to 4.9% YoY for April versus market expectations of reprinting 5.0% inflation mark, marking the first below 5.0% print in two years. The MoM figures, however, matched the upbeat 0.4% forecasts compared to 0.1% previous readings. Further, the CPI ex Food & Energy, known as the core CPI, matched 5.5% and 0.4% market consensus on a yearly and monthly basis respectively versus 5.6% and 0.4% priors in that order.

Following the data, Fed funds futures traders are pricing in a pause before expected rate cuts in September, per Reuters.

It should be noted that the US policymakers failed to seal the debt-ceiling deal in their first attempt on Wednesday but let the ball rolling by allowing office members to discuss the details and try again on Friday, which in turn prod the market sentiment. “Detailed talks on raising the US government's $31.4 trillion debt ceiling kicked off on Wednesday with Republicans continuing to insist on spending cuts, the day after Democratic President Joe Biden and top congressional Republican Kevin McCarthy's first meeting in three months,” said Reuters.

On the same line, the absence of major negatives from the banking front joins upbeat earnings and mostly softer US data to push back the bank fears.

Amid these plays, S&P 500 Futures print mild gains after Wall Street’s mixed close whereas US Treasury bond yields struggle for clear directions following the first daily loss in five.

Moving on, US Producer Price Index (PPI) for April and other second-tier employment, as well as activities, data will be important for intraday directions of the DXY. Above all, risk catalysts will be more observed amid the market’s cautious optimism.

Technical analysis

A one-month-old symmetrical triangle restricts short-term US Dollar Index moves between 102.25 and 101.20.