US Dollar Index loses ground to 101.40 on CPI weakness

• Weaker than expected CPI numbers put pressure on the DXY again.
• US yields reverse multi-day rally across the curve.
• US headline and core inflation continued to decline in April.

He USD misses two consecutive days of gains and returns to the 101.40/30 zone as measured by the US Dollar Index (DXY) on Wednesday.

DXY looks offered after CPI figures

The index quickly lost early gains and fell back into negative territory shortly after US inflation figures posted another weak reading in April.

In fact, headline CPI inflation rose an annualized 4.9% in April and core CPI rose 5.5% over the past twelve months. In monthly terms, both indicators rose 0.4%.

The continuation of the disinflationary path in US consumer prices sabotages the new rebound in the dollar and causes the dollar index (DXY) to change its trend to the upside, as the probability of a breather in the cycle of Fed normalization takes hold.

Earlier in the session, MBA mortgage applications rose 6.3% in the week to May 5. Later in the American session, the Monthly Budget Statement for April will close the daily calendar.

What to expect around the USD

The index loses momentum as earlier gains evaporate after softer-than-expected US inflation figures for April.

The index appears to be facing downward pressure in light of the recent indication that the Fed will likely pause its normalization process in the near future. Having said this, the future direction of monetary policy will be determined by the behavior of the main fundamental indicators (employment and prices, mainly).

In favor of a doldrums on the part of the Fed seem to be the persistent disinflation -despite the fact that consumer prices remain well above the target-, the incipient cracks in the labor market, the loss of momentum of the economy and the growing uncertainty surrounding the US banking sector.

technical levels

Now, the index lost 0.21% at 101.43 and faces initial support at 101.01 (April 26 weekly low) before 100.78 (April 14 low) and finally 100.00 (psychological level). On the other hand, a break above 101.83 (weekly high May 9) would open the door to 102.40 (monthly high May 2) and then 102.80 (weekly high April 10).