US Dollar (DXY) Index News: Plunging as Yields Tumble Following Tepid CPI Report

James Hyerczyk
Published: May 15, 2024, 13:19 GMT+00:00

Key Points:

  • U.S. Dollar Index drops after lower-than-expected CPI.
  • 10-year and 2-year Treasury yields see notable drops.
  • Fed may adjust rates lower if inflation continues easing.
US Dollar Index (DXY)

U.S. Dollar Index Tumbles

The U.S. Dollar faced a sharp decline against a basket of major currencies on Wednesday, triggered by U.S. consumer inflation data that fell below expectations. This development pushed Treasury yields down and diminished the appeal of the dollar.

At 13:10 GMT, the U.S. Dollar Index is trading 104.527, down 0.494 or -0.47%.

Inflation and Economic Data

April’s consumer inflation, measured by the Consumer Price Index (CPI), rose by 0.3% from March, under the anticipated 0.4%, as reported by the Labor Department’s Bureau of Labor Statistics. This rate reflects a slight easing in inflation, providing temporary relief to consumers, though not significantly altering the broader economic outlook for interest rates.

The CPI over the past 12 months matched predictions at a 3.4% increase. Core inflation, which excludes volatile food and energy prices, also aligned with forecasts, recording a 0.3% monthly rise and a 3.6% annual increase. These figures show inflation persisting near current levels without significant acceleration.

Treasury Yields React to CPI Data

The reaction in the bond market was pronounced, with the 10-year Treasury yield dropping over 8 basis points to 4.363%, and the 2-year yield decreasing by more than 9 basis points to 4.726%. This decline in yields signals investor anticipation of a potential shift in the Federal Reserve’s monetary policy stance.

Short-Term Market Forecast

In the short term, the financial markets may exhibit a bullish trend for bonds, driven by expectations of easing yields. Conversely, the U.S. Dollar could remain under pressure if subsequent economic reports continue to reflect subdued inflation. Traders should watch closely for any signs of further easing in inflation that might influence the Federal Reserve’s rate decisions.

Technical Analysis

Daily US Dollar Index (DXY)

DXY is dropping sharply on Wednesday after plunging through the 50-day moving average at 104.744. This changed the intermediate trend down.

The next downside target is the 200-day moving average at 104.323. This indicator represents the longer-term trend. We could see a technical bounce on the first test of this level, but if it fails, look out to the downside. It is the trigger point for accelerated selling pressure.

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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