US Dollar Index falls below 104,000 on China-inspired optimism and inconsistent Fed utterances in advance of US inflation

US Dollar Index (DXY) renews its intraday low near 103.75 as it extends the previous day’s U-turn from a three-week high during Monday’s Asian session. In doing so, the DXY expresses both optimism and mixed apprehension on the next move of the US Federal Reserve (Fed).

That Nevertheless, the risk-positive headlines from China, one of the world’s main commodities users, strengthen the market’s bullish sentiment as Beijing reopens national borders following a three-year suspension. On the same line would be the early evidence suggesting China’s strong spending throughout the Christmas season, as well as comments from People’s Bank of China (PBOC) Official suggesting optimism surrounding China’s economy conditions.

In contrast, negative US wage growth, ISM Services PMI, and Factory Orders data from the previous day depressed Treasury bond yields and the US Dollar Index (DXY). Nonetheless, the headline US Nonfarm Payrolls and Unemployment Rate data for December were positive.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, highlighted dangers of a US economic slowdown in response to the mixed statistics, while Charles Evans, president of the Federal Reserve Bank of Chicago, recommended a 0.50% rate hike in December. In addition, Kansas City Fed President Esther George underscored inflation fears, while Richmond Federal Reserve Bank President Thomas Barkin praised the last two months of inflation figures as "a move in the right direction" but emphasized inflation anxieties due to the higher median values.

10-year US Treasury yields fell 16 basis points (bps) to 3.56 percent, the lowest level in three weeks, after Wall Street ended higher. At the time of publication, intraday gains for S&P 500 Futures was 0.20 percent.

Moving forward, Thursday's US Consumer Price Index (CPI) for December is emphasized by the mixed US data and a decrease in US Treasury bond yields, as stronger inflation readings could shift focus to the Fed's hawkish bets and force the DXY to rebound.