US Dollar Retreats Ahead of CPI Data

The US Dollar Index is currently trading at 104.15 with mild losses, as traders await the March CPI report on Wednesday. The Fed’s cautious stance is calibrated in light of incoming data, with hot labor market figures reported last week potentially justifying the delay of the easing cycle.

The US economy has yet to show clear evidence of a moderation of inflation and economic activity, making the Fed comfortable to start cutting rates. If data shows a resilient economy and easing expectations adjust, the USD may see further upside.

Markets are still pricing in higher odds of around 60% of the easing cycle starting in June. US Treasury bond yields show a slight increase, with the 2-year yield at 4.78%, the 5-year at 4.41%, and the 10-year at 4.33%. The headline figure is seen accelerating, while the core measure is seen cooling down. The outcome of the index will likely fuel volatility in the USD dynamic via movements in Treasury yields and Fed expectations.

DXY technical analysis shows mixed sentiment in the market, with the Relative Strength Index (RSI) having a negative slope but maintaining positive territory. The Moving Average Convergence Divergence (MACD) indicator shows decreasing green bars, signifying a possible slowdown in the buying power. However, the DXY is positioned above its 20, 100, and 200-day Simple Moving Averages (SMAs), insinuating an underlying bullish sentiment.