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US Dollar (DXY) Index News: Flat Trade Ahead of Consumer Inflation Report

By:
James Hyerczyk
Updated: Jul 10, 2024, 14:22 GMT+00:00

Key Points:

  • Powell states U.S. is no longer an overheated economy, hinting at potential rate cuts and weakening the dollar against major currencies.
  • 10-year Treasury yield drops 2 basis points to 4.278%, 2-year note yield at 4.605% as markets digest Powell's comments on policy restraint.
  • Upcoming CPI report seen as critical test for markets, with lower inflation potentially strengthening case for rate cuts and higher figures delaying easing.
US Dollar (DXY) Index News:

In this article:

Dollar Slips as Powell’s Remarks Fuel Rate Cut Speculation

The U.S. Dollar Index edged lower on Wednesday as traders digested Federal Reserve Chair Jerome Powell’s recent comments. Markets are now keenly awaiting Thursday’s crucial U.S. consumer inflation report. Trader indecision and capped gains are helping to underpin gold prices.

At 14:09 GMT, the U.S. Dollar Index is trading 105.045, down 0.077 or -0.07%.

Powell’s Testimony Impacts Dollar

In his semi-annual testimony to lawmakers, Powell stated that the U.S. is “no longer an overheated economy.” While he refrained from signaling the timing of potential rate actions, investors interpreted his remarks as a hint that the central bank is moving closer to its first rate cut since 2020.

Key Points from Powell’s Speech

Powell emphasized that reducing policy restraint too late or too little could unduly weaken economic activity and employment. He noted that while the economy and labor market remain strong, there has been some cooling. The Fed Chair reiterated the central bank’s commitment to bringing inflation down to the 2% target.

Treasury Yields React

U.S. Treasury bond yields dipped slightly following Powell’s cautionary stance on keeping interest rates elevated for an extended period. The 10-year Treasury yield decreased by 2 basis points to 4.278%, while the 2-year Treasury note yield stood at 4.605%.

Anticipation Builds for CPI Report

Investors are closely watching the June consumer price index (CPI) report due on Thursday. This data point is seen as a critical test for the market and could significantly influence the outlook for rate cuts. The report will provide insights into whether the Fed’s efforts to cool inflation are succeeding.

Potential Impact on Dollar

If the CPI report shows continued easing of inflation pressures, it could further strengthen the case for rate cuts, potentially weakening the dollar. Conversely, higher-than-expected inflation figures might lead to a dollar rally as it could delay the Fed’s timeline for easing monetary policy.

Short-term Market Forecast

The dollar’s near-term outlook appears bearish. Powell’s cautious tone and the market’s increasing bets on rate cuts are likely to keep pressure on the greenback. However, Thursday’s CPI data could trigger significant market movements. Traders should prepare for potential volatility as markets react to the inflation figures and reassess the Fed’s likely policy path for the remainder of the year.

Technical Analysis

Daily US Dollar Index (DXY)

The U.S. Dollar Index is stradling the 50-day moving average at 105.071, suggesting that this indicator is controlling the near-term direction of the market. The subdued price action is also indicating that we’re in a news driven market.

Stronger than expected CPI data will likely strengthen the dollar, leading to a breakout over the 50-day MA. Weak data could sink the dollar into the 200-day moving average 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.

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