US Dollar (DXY) Index News: Lower as Treasury Yields Dip Before Fed Meeting

James Hyerczyk
Updated: May 1, 2024, 13:48 GMT+00:00

Key Points:

  • DXY drops to 106.229, influenced by Treasury yield adjustments.
  • Surging private payrolls in April exceed market expectations.
  • Fed likely to slow quantitative tightening by June.
US Dollar Index (DXY)

The U.S. Dollar Index (DXY) experienced a downturn amid falling U.S. Treasury yields on Wednesday. This shift occurred just before the Federal Reserve’s policy meeting decision, fueled by a report indicating a persistently strong labor market, which may impact future monetary policy decisions.

At 14:33 GMT, the U.S. Dollar Index is trading 106.229, down 0.078 or -0.07%.

Market Drivers

U.S. Treasury yields saw initial increases following a report that showed U.S. private sector employment in April exceeded expectations, with the ADP Employment report noting a significant rise. Private payrolls surged by 192,000, following a revised increase of 208,000 in March. However, these gains were short-lived.

Treasury Movements

Subsequent announcements from the U.S. Treasury Department revealed plans for a $125 billion refunding from May to July, aimed at generating $17.2 billion in new cash. This involves the sale of $58 billion in three-year notes, $42 billion in ten-year notes, and $25 billion in thirty-year bonds, which led to a muted reaction in bond rates.

Yield Fluctuations

Key yield rates adjusted slightly, with the benchmark 10-year note dropping by 1.6 basis points to 4.668%, and the 30-year bond yield decreasing by 2 basis points to 4.7692%. The yield on 2-year notes also fell by 1.9 basis points to 5.0269%. The yield curve between two- and ten-year notes showed a slightly reduced inversion, indicating cautious economic expectations.

Federal Reserve Outlook

As the Federal Open Market Committee (FOMC) wraps up its meeting, it is anticipated to maintain the policy rate between 5.25% and 5.50%. Market participants expect a hawkish stance from Fed Chair Jerome Powell, reflecting no immediate plans to cut rates amid ongoing inflation and a strong job market. Additionally, there is speculation that the Fed may soon announce a slowdown in quantitative tightening, possibly by June, and might provide insights into its balance sheet reduction strategy.

Market Forecast

Given the current economic indicators and the Fed’s expected policy stance, traders should prepare for continued volatility in the U.S. Dollar and bond markets. The cautious approach by the Fed, combined with economic data trends, suggests a potential for further adjustments in market strategies, impacting both the DXY and broader financial markets in the near term.

Technical Analysis

Daily US Dollar Index (DXY)

The U.S. Dollar Index is lower on Wednesday, but remains well-supported by the 50-day moving average at 104.503 and the 200-day moving average at 104.159.

The short-term top at 106.517 is expected to be the triggerpoint for upside momentum with targets lined up at 107.113 and 107.348.

On the downside, taking out 105.414 will be a sign of weakness with the 50-day MA and 200-day MA potential near-term targets.

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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