US Dollar Index: DXY grinds near 103.50 on US default fears, anxiety ahead of FOMC Minutes

US Dollar Index remains sidelined after refreshing two-month high.
Hawkish Fed bets, risk-off mood allows DXY to remain firmer despite pullback in yields.
Upbeat US PMIs, concerns about Fed’s next move highlight today’s Minutes.
US policymakers struggle to overcome the deadlock in debt ceiling talks ahead of early June expiry.

US Dollar Index (DXY) bulls take a breather at a nine-week high, making rounds to 103.50 as traders await the latest Federal Open Market Committee (FOMC) Meeting Minutes. Also challenging the greenback’s gauge versus six major currencies are the fears of the US default. However, hawkish Federal Reserve (Fed) concerns and upbeat US data put a floor under the DXY price during early Wednesday.

A lack of progress in the talks to avoid the US debt ceiling expiration and fears that the US may mark the ‘catastrophic’ default weighed on the market sentiment of late. Recently, US House Speaker Kevin McCarthy crossed wires, via Reuters, while suggesting no deal on the debt ceiling extension today but repeating previous optimism that they will get an agreement before June 01. Previously, Washington rolled out news stating the US Treasury has asked multiple agencies if they can delay the payment demands.

Talking about the data, preliminary figures of the May monthly PMIs signaled that the US Services sector keeps outgrowing the manufacturing ones and fuelled the Composite PMI figure to the highest levels in a year. That said, the US S&P Global Manufacturing PMI eased to 48.5 from 50.2 versus 50.0 market forecasts whereas Sevices PMI rose to 55.1 compared to 52.6 expected and 53.6. With this, the Composite PMI marked 54.5 figures versus the analysts’ expectations of 50.0 and 53.4.

On the other hand, the latest comments from Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin and San Francisco President Mary C Daly who backed the calls for higher Fed rates while citing the inflation woes, which in turn propelled the betts on the Fed rate increase in June. The same push back the Fed rate cut and allows the US Dollar to remain firmer despite a retreat in the US Treasury bond yields. It should be noted that the US 10-year and two-year Treasury bond yields retreated from the highest levels since early March the previous day.

With this, the Wall Street benchmarks saw the red but the S&P 500 Futures seem to struggle for clear directions, marking mild gains of late.

Looking ahead, the qualitative factors affecting the market sentiment, like US debt ceiling talks, US-China tension and Fed commentary, are the key catalysts to direct short-term US Dollar Index moves ahead of the Fed Minutes.

Also read: FOMC Minutes Preview: The complicated task of searching for clues