US Dollar (DXY) Index News: Gains Capped as French Political Risks Recede

James Hyerczyk
Published: Jun 18, 2024, 13:31 GMT+00:00

Key Points:

  • Dollar extends losses against euro and sterling as fears of far-right French government recede, impacting market sentiment.
  • Weak retail sales data sees Treasury yields drop, with 10-year yield down to 4.244% and 2-year note at 4.714%.
  • Fed's Kashkari predicts one rate cut this year, with more evidence needed for inflation easing back to 2%.
US Dollar (DXY) Index News:

Dollar Weakens Against Euro and Sterling

The U.S. dollar continued its decline on Tuesday, following Monday’s losses against the euro and sterling. The currency’s downward trend comes as market fears over a far-right French government diminished, calming investor jitters.

At 13:18 GMT, the U.S. Dollar Index is trading 105.324, down 0.007 or -0.01%.

Treasury Yields and Retail Sales Impact

Initially, Treasury yields rose overnight, but the dollar failed to gain support from this increase. Later, yields turned lower following a weaker-than-expected retail sales report. The 10-year Treasury yield decreased by over three basis points to 4.244%, while the 2-year note yield fell nearly five basis points to 4.714%.

Retail sales in May rose by just 0.1%, missing economists’ expectations of a 0.2% increase. Additionally, April’s retail sales data was revised downward to show a 0.2% decline. This weaker-than-anticipated consumer spending has raised concerns about the economy’s strength and the potential for the Federal Reserve to implement multiple rate cuts later this year.

Federal Reserve Rate Cut Speculations

Minneapolis Fed President Neel Kashkari mentioned on CBS News that it is a “reasonable prediction” for the Fed to cut rates once this year, potentially in December. He emphasized the need for more evidence that inflation is on a path back to the 2% target. Other Fed officials, including Boston Fed President Susan Collins, Dallas Fed President Lorie Logan, and Richmond Fed President Tom Barkin, are scheduled to speak throughout the day, potentially providing further insights into the Fed’s outlook.

French Political Developments

The euro’s recent selloff, which bolstered the dollar last week, was driven by French President Emmanuel Macron’s call for a snap election following his party’s loss to Marine Le Pen’s eurosceptic National Rally in the European Parliament elections. Market expectations are leaning towards a hung parliament, with Le Pen’s party unlikely to implement drastic fiscal changes.

Market Forecast

Given the mixed signals from recent economic data and ongoing Fed speculations, the dollar is likely to remain under pressure in the short term. Traders should monitor upcoming Fed speeches and economic reports for further direction. The outlook suggests a bearish trend for the dollar as weak retail sales data and potential rate cuts weigh on investor sentiment.

Technical Analysis

Daily US Dollar Index (DXY)

The U.S. Dollar Index is retreating on Tuesday, putting it in a position to test the 50-day moving average support at 105.259.

Holding above the 50-day MA will indicate that buyers are defending the uptrend. If this triggers a momentum recovery then look for a test of 105.805.

A failure to hold the 50-day MA will signal a shift in intermediate term sentiment, setting up a potential test of the 200-day moving average at 104.470. This is long-term support.

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.

Did you find this article useful?