US Dollar Index: DXY licks its wounds near 102.00 on Easter Monday, US inflation, FOMC Minutes eyed

US Dollar Index fades bounce off two-month low, dribbles after four-week downtrend.
Challenges to sentiment, recently hawkish Fed bets put a floor under the DXY price.
Fears of US recession, threats to USD’s reserve currency status prod US Dollar Index bulls.
Easter Monday to restrict market moves, US CPI, Fed Minutes in focus.

US Dollar Index (DXY) retreats to 102.00, after posting an ephemeral bounce off the two-month low during the last week. Even so, the greenback’s gauge versus six major currencies dropped in four consecutive weeks and prints mild losses by the press time as markets consolidate recent moves amid the Easter Monday holiday.

It’s worth noting that the recently firmer bets on the Federal Reserve (Fed) joined an absence of disappointment from the US employment report to put a floor under the DXY price. On the same line could be the geopolitical fears surrounding China. However, concerns about the US recession and challenges to the US Dollar’s reserve currency status exert downside pressure on the US Dollar Index.

That said, Taiwan President Tsai Ing-wen’s US visit triggered a fresh bout of US-China woes as Beijing conducts strong military drills near Taiwan Strait. “China’s military simulated precision strikes against Taiwan in a second day of drills around the island on Sunday, with the island’s defense ministry reporting multiple air force sorties and that it was monitoring China’s missile forces,” reported Reuters.

On the other hand, Friday’s upbeat prints of the US Nonfarm Payrolls (NFP) bolster hawkish Fed bets. However, the market participants do expect a rate cut in late 2023 and hence pour cold water on the face of the US Dollar bulls. With this, the CME’s FedWatch Tool suggests 69% odds of the 0.25% rate hike in May, versus 55% before the US jobs report.

It’s worth observing that Russia’s strong usage of the Chinese Yuan, versus the US Dollar, joins a pact between Brazil and China to ignore the greenback as an intermediate currency during their trades to challenge the USD’s elite status.

On Friday, the US Bureau of Labor Statistics (BLS) revealed that Nonfarm Payrolls (NFP) rose by 236K in March, the lowest since January 2021 (considering the revisions), versus 240K expected and 326K prior. Further, the Unemployment Rate eased to 3.5% versus 3.6% prior while the Labor Force Participation Rate improved to 62.6% from 62.5%. Finally, annual wage inflation, per the Average Hourly Earnings, dropped to 4.2% from 4.6%, versus market forecasts of 4.3%.

Looking ahead, an off in multiple markets, due to Easter Monday, may restrict DXY moves ahead of the key US Consumer Price Index (CPI) data and the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting Minutes.