The US Dollar Index (DXY) continues to climb as it approaches the 102.00 level, boosted by both hawkish Fed bets and concerns over First Republic Bank. The recent surge in the greenback’s gauge versus the six major currencies can be attributed to several factors, including a large exodus of deposits from First Republic Bank, upbeat US data, and the upcoming Fed meeting and US Nonfarm Payrolls releases.
FDIC Calls for Bids as First Republic Bank Struggles
First Republic Bank experienced heavy withdrawals, which caused its share prices to plummet. This development has led to fears surrounding the broader banking sector, as the Federal Deposit Insurance Corporation (FDIC) called for bids to take over the troubled bank. The move has attracted several top-tier private organizations, including JP Morgan, to bid for the bank’s takeover. The outcome of the bids is up for release, but it is important to note that the immediate defense of the bank by a private player isn’t a solution to the banking sector’s broader problems. This raises concerns about similar actions for larger public banks in the future.
Mixed US GDP Readings and Hawkish Fed Bets
Early signals for US inflation came in firmer, which favored Fed hawks, even as US GDP eased. The US Gross Domestic Product (GDP) for the first quarter of 2023 marked mixed outcomes, with the headline US GDP annualized easing to 1.1% and the GDP Price Index inching higher to 4.0% on an annualized basis. The Fed’s preferred inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index, rose to 4.6% from 4.5% expected on a YoY basis. Additionally, the US Employment Cost Index also increased by 1.2% in Q1 2023. The CME Group FedWatch Tool suggests higher odds of the Fed’s 0.25% rate hike in May and June, as well as a reduction in the market’s bets on the September rate cut from the US central bank.
Technical Analysis and Outlook
The US Dollar Index (DXY) is well set for consolidating the losses made in March and April. However, a clear upside break of one-month-old descending resistance line, around 101.70, is necessary to convince buyers. US ISM Manufacturing PMI for April and the US jobs report for April are also on the calendar, which could entertain the US Dollar Index traders.
