US Dollar Index consolidates around 104.70 with a negative bias, US Retail Sales eyed

• US Dollar Index faces challenges due to subdued US Treasury yields.
• The risk appetite is improved possibly on remarks from Fed officials.
• FedWatch Tool suggests a 90% chance of no rate adjustment by the Fed in March.

The US Dollar Index (DXY) grapples to recover recent losses, clinging around 104.70 during the Asian session on Thursday. The downward pressure on the US Dollar (USD) can be attributed to the decline in US Treasury yields, driven by improved risk appetite. At present, the 2-year and 10-year US yields stand at 4.55% and 4.23%, respectively. In terms of economic events, Retail Sales data and Initial Jobless Claims will be closely watched on Thursday.

Market sentiment indicates that the Federal Reserve (Fed) is likely to maintain interest rates unchanged in the upcoming meeting. According to the FedWatch Tool, the probability of the Fed keeping interest rates steady in the March meeting has surged to nearly 90%. Additionally, there is a modest 37% probability of a rate cut in May, with the likelihood of a 25 basis points (bps) rate cut increasing to around 53% in May.

Traders continue to evaluate the Federal Reserve’s monetary policy outlook amid robust inflation data and recent statements from Fed officials. Chicago Fed President Austan Goolsbee’s comments on Wednesday aimed to calm market worries by indicating that higher-than-expected consumer prices don’t necessarily rule out the possibility of the Federal Reserve considering interest rate cuts in 2024.

Late on Wednesday, Federal Reserve Vice Chair for Supervision Michael Barr garnered attention by reaffirming the Fed and its core Federal Open Market Committee’s confidence in the trajectory of US inflation towards the Fed’s 2% target.