US Dollar Index: DXY Surpasses 104.00 As Markets Reevaluate Fed Wagers

US Dollar Index (DXY) consolidates previous weekly losses with modest gains near 104.15 during Wednesday's inactive Asian session. The lethargic markets and the ability of US policymakers to avert a 'catastrophic' default contribute to the dollar's strength versus the other six major currencies. The same increased bond market activity increases the likelihood that the Federal Reserve (Fed) will raise interest rates in July, if not in June.

In spite of the fact that a resolution to the United States default concerns stimulated government bond offerings, the yields exhibited a mixed reaction, with 10-year coupons remaining stagnant at around 3.69 percent while their two-year counterparts increased to 4.50 percent. Due to the debt-ceiling extension measure, the US Treasury increased bond sales by approximately $42 billion at the latest.

In light of this, Reuters reported, "According to the CME Group's FedWatch Tool, there is a 65% chance of a rate hike of at least 25 basis points in July, as projected by Fed funds futures traders." Notable is the fact that interest rate futures indicate a nearly 15% chance of a June rate increase. The cause may be related to Monday's disappointing U.S. economic data and the Federal Reserve's (Fed) dovish comments prior to the Fed blackout.

Ex-Fed Vice Chairman Richard Clarida stated on Tuesday that the likelihood of one or two future Fed rate hikes is uncertain.

Elsewhere, the disappointing economic performance of the Euro and the Pound Sterling permits the US Dollar to gain ground as traders race to safety.

In this context, S&P500 Futures continue to rise as technology stocks remain stronger but manufacturing stocks impact on sentiment and limit Wall Street's gains. Nevertheless, US stocks closed with modest gains.

In the future, a light schedule and the absence of Fed policymaker speeches emphasize risk catalysts as the key to monitoring unambiguous directions.