US Dollar Index: DXY Traces Firmer Yields Beyond 103.00 On Hawkish Fed Expectations And China's Apprehension Ahead Of US Data

US Dollar Index (DXY) fluctuates near the weekly high near 103.40 as market participants await key US data and risk catalysts to keep DXY supporters on the board during Thursday's early Asian session.

In doing so, the US Dollar Index maintains its lead after a three-day winning streak, primarily due to hawkish Federal Reserve (Fed) worries and China-induced fears, while disregarding weaker US data.

According to the most recent Federal Open Market Committee (FOMC) Minutes for the June meeting, nearly all members consented to a pause in the rate hike trajectory, while some policymakers indicated a preference for a 0.25 percentage point rate hike in July. The same highlights the US central bank's hawkish bias and propels the US Dollar Index.

Elsewhere, China's Caixin Services PMI for June fell to 53.9 from 57.1 in May, adding to the escalating fears of a US-China trade conflict amid fresh warnings of additional trade restrictions from Beijing, which weighed on sentiment and boosted the DXY. However, China's Global Times and former Vice Commerce Minister warned of difficulties for U.S. IT and metal companies. China announced precipitous export restrictions on certain gallium and germanium products on Wednesday, effective August 1. The latest retaliation by the dragon nation is in response to the US ban on AI chip exports to Beijing.

It should be noted that an increase in Chinese investor purchases of Hong Kong and Macau wealth products combines with pessimism about China's top-tier housing players like Shimao Group and the government-backed Sino-Ocean Group to heighten economic concerns about the world's largest industrial actor, China.

A Reuters poll of 80 FX strategists for the US Dollar also supports the greenback's bullish bias, in addition to the aforementioned factors. In spite of this, the survey of Forex strategists cites the robust US economy as a reason for further DXY appreciation. In addition to indicating a decline in US Dollar short positions, the survey cites data from the Commodity Futures Trading Commission in support of US Dollar Index supporters.

Alternately, weaker U.S. data and a cautious disposition ahead of the key catalysts encourage the DXY investors. In spite of this, the US Factory Orders report a 0.3% MoM increase for May, versus the 0.8% expected. Additionally, the official publication noted that new orders for manufactured durable products increased for the third consecutive month in May. US ISM Manufacturing PMI and S&P Manufacturing PMI were weaker than expected earlier in the week, which weighed on the US Dollar Index.

In this context, the markets have priced in a rate rise by the Federal Reserve of 0.25 percentage points in June, propelling the US Dollar Index while Wall Street benchmarks closed in the red and US Treasury bond yields increased.

Tomorrow's US ISM Services PMI and ADP Employment Change for June, as well as China's news and economic difficulties, will be crucial for determining the DXY's direction.