US Dollar (DXY) Index News: In Position to Post Best Performance in Over a Month

James Hyerczyk
Updated: May 24, 2024, 15:23 GMT+00:00

Key Points:

  • The U.S. dollar gains momentum on stronger-than-expected economic data, lifting market concerns.
  • Minutes from the Fed's latest meeting show a delay in anticipated rate cuts.
  • Treasury yields remain steady as economic indicators point to persistent inflation worries. Treasury yields remain steady as economic indicators point to persistent inflation worries.
US Dollar Index (DXY)

Dollar Set for Largest Weekly Rise in Six Weeks on Robust Economic Data

The U.S. dollar is poised for its largest weekly gain in a month and a half, driven by unexpectedly strong economic data that has heightened market concerns over inflation and interest rate prospects.

Strong Business Activity and Rising Prices

May’s U.S. business activity reached its highest level in over two years, with manufacturers reporting significant input price increases. This has led to a reduction in expectations for imminent U.S. interest rate cuts, driving up government bond yields. The U.S. dollar index (DXY), which compares the dollar to six major currencies, edged down 0.2% to 104.88 but remains on track for its largest weekly gain since mid-April.

Fed Meeting Minutes and Rate Cut Expectations

Minutes from the Federal Reserve’s recent meeting revealed ongoing debates among policymakers regarding the restrictiveness of current rates in curbing inflation. Consequently, traders have postponed the anticipated timing of the first Fed rate cut to December, now pricing in just 36 basis points worth of cuts for 2024, down from 50 basis points previously.

Economic Data Reinforces Higher Rate Expectations

Thursday’s business surveys from S&P Global reinforced the belief among many traders that the Fed may maintain higher rates for an extended period. According to City Index strategist Matt Simpson, “Expansive growth is usually a good thing. But not for traders who are positioned for Fed cuts.”

Treasury Yields and Consumer Sentiment

U.S. Treasury yields remained relatively stable, with the 10-year Treasury yield at 4.478% and the 2-year yield at 4.9375%. Despite the University of Michigan’s consumer sentiment index for May exceeding expectations, it fell to 69.1, the lowest since November 2023. One-year inflation expectations dropped to 3.3% from 3.5%.

Durable Goods Orders and PMI Data

April’s durable goods orders rose by 0.7%, outperforming the expected 1% decline, while excluding transportation, orders increased by 0.4%. S&P Global’s purchasing managers’ index (PMI) indicated expansion in both services and manufacturing sectors for May.

Market Forecast

Given the robust economic data and the Fed’s cautious stance on rate cuts, the dollar is likely to remain strong in the short term. Traders should anticipate potential volatility as market expectations adjust to the possibility of sustained higher interest rates and further economic growth indicators.

Daily US Dollar Index (DXY)

Having re-established support at the 200-day moving average at 104.392 earlier in the week, the U.S. Dollar Index is now poised to overtake the 50-day moving average at 104.980. Not only will this extend the rally, but it will also change the intermediate trend to up.

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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