US Dollar (DXY) Index News: Firm as Euro Struggles, Yields Rise

James Hyerczyk
Updated: Jun 17, 2024, 19:27 GMT+00:00

Key Points:

  • The U.S. dollar remains strong while the euro hovers near its lowest levels amid European political uncertainties.
  • U.S. Treasury yields rise following comments from Federal Reserve President Kashkari on potential rate cuts.
  • The Fed's cautious stance on interest rate cuts supports the dollar, with key U.S. economic data in focus this week.
US Dollar (DXY) Index News:

Dollar Firm as Euro Wavers

The U.S. dollar remained strong on Monday, while the euro hovered near its lowest levels in over a month due to ongoing political uncertainties in Europe.

At 14:02 GMT, the U.S. Dollar Index is trading 105.524, up +0.007 or +0.01%.

Euro Struggles Amid Political Concerns

The euro traded nearly flat at $1.0701, showing a slight recovery after hitting a low of $1.06678 on Friday, the weakest since May 1. Last week, the euro recorded its largest weekly decline since April, dropping 0.88%. Investor worries about a potential budget crisis in the eurozone intensified as far-right and leftist parties gained traction ahead of France’s surprise parliamentary election, posing a challenge to President Emmanuel Macron’s centrist administration.

Despite the sell-off in French financial markets late last week, the European Central Bank (ECB) has no plans to discuss emergency purchases of French bonds, according to five sources. The political turmoil has negatively impacted the euro, which constitutes about 57% of the U.S. Dollar Index (DXY), indirectly bolstering the dollar.

Dollar Index and Treasury Yields

The dollar index, which measures the greenback against a basket of major currencies, held steady at 105.52, after peaking at 105.80 on Friday, the highest since May 2.

U.S. Treasury bond yields edged higher on Monday, influenced by comments from Minneapolis Federal Reserve President Neel Kashkari. He indicated that the Federal Reserve might delay rate cuts until December, stating it was a “reasonable prediction.” The 10-year Treasury yield rose by 6 basis points to 4.269%, while the 2-year yield increased by 5 basis points to 4.736%.

Fed’s Rate Outlook

Kashkari’s remarks come after the Fed’s updated projections last week, which suggested a single interest rate cut this year. He emphasized the need for more evidence to ensure inflation is on track to reach the Fed’s 2% target before making any decisions. Last week, the producer price index, a key inflation measure, was lower than expected for May, fueling hopes for a rate cut and lowering Treasury yields.

The Fed’s decision to maintain rates at 5.25% to 5.50% last week, coupled with the projection of just one rate cut in 2024, has set a cautious tone. This week’s U.S. economic data, including retail sales on Tuesday and flash PMIs on Friday, will be closely watched for any signs of economic strength or weakness.

Market Forecast

Given the euro’s continued weakness and the Fed’s cautious stance on rate cuts, the U.S. dollar is likely to remain firm in the short term. Traders should monitor upcoming economic data and political developments in Europe, as these factors will play a crucial role in shaping the dollar’s outlook.

Technical Analysis

Daily U.S. Dollar Index (DXY)

The U.S. Dollar Index is edging higher on Monday. Although the index is up, it remains inside Friday’s wide range, which suggests investor indecision and impending volatility.

The short-term range is 106.517 to 103.993. Its 50% to 61.8% retracement zone is 105.255 to 105.552. On Friday, the index reached a high of 105.805. Currently, it is trading a little above the zone.

Look for a bullish tone to develop on a sustained move over 105.552, and a weaker trade under 105.255.

The key support is the 50-day moving average at 105.182. A trade through this will weaken the momentum, but there is still major support at 104.470.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.