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US Dollar (DXY) Index News: Showing Resilience Amid Surging Treasury Yields

By:
James Hyerczyk
Published: Apr 2, 2024, 14:00 GMT+00:00

Key Points:

  • Dollar slightly dips, but treasury yields indicate strength.
  • Manufacturing growth in U.S. lowers June rate cut odds.
  • Dollar's five-month peak underscores market confidence in U.S. economy.
US Dollar Index (DXY)

U.S. Dollar and Treasury Yields

The U.S. Dollar is exhibiting a slight dip against major currencies, yet the sentiment remains robust, bolstered by surging U.S. Treasury yields, the highest since late November. This resilience raises questions about the stock market’s further retreat and the potential for the dollar to climb on safe-haven buying. The 10-year Treasury note yield spiked, signaling reduced likelihood of a Federal Reserve rate cut in June.

At 13:49 GMT, the U.S. Dollar Index is trading 104.816, down 0.148 or +0.14%.

Manufacturing Growth and Fed Rate Cut Odds

Manufacturing in the U.S. showed signs of expansion for the first time in 17 months, as indicated by the ISM manufacturing index. This development, surpassing Dow Jones consensus estimates, has influenced market expectations, diminishing the probability of significant Fed rate cuts. Current fed futures trading places odds for a June rate cut at approximately 58.8%, a decrease from the previous week’s 70%.

Fed’s Steady Approach and Dollar Strength

The Federal Reserve’s consistent approach, maintaining interest rates unchanged, aligns with recent economic data trends. Market pricing is leaning towards anticipating three rate cuts, starting potentially in June, but the decision hinges on forthcoming data. The U.S. dollar reached a five-month peak, propelled by the stronger-than-expected economic indicators, though its advance against the yen was moderated due to concerns about Japanese intervention.

Currency Movements and Inflation Worries

The euro and sterling are experiencing lows, with the euro not far from its November nadir and sterling hovering near its lowest since December. U.S. ISM manufacturing data also revealed a surge in sector prices, intensifying concerns about persistent inflation and its implications for the Fed’s rate cut timeline.

Japanese Yen and Intervention

The Japanese yen has stabilized, maintaining a tight range despite reaching a 34-year low. Japan’s Finance Minister reiterated openness to all options in response to erratic currency movements. This stance comes after the Bank of Japan’s interest rate hike last month, their first since 2007, reflecting caution about further tightening.

Short-Term Market Forecast

In the short term, the U.S. dollar is expected to remain bullish, driven by solid economic data and reduced expectations of an immediate Fed rate cut. However, any shift in this trend will be contingent on forthcoming economic data, especially related to job openings and inflation rates. The yen’s outlook remains uncertain, hinging on potential interventions and global currency trends.

Technical Analysis

Daily US Dollar Index (DXY)

The trend turned up when the US Dollar Index poked through the February 14 main top at 104.976. However, the lack of follow-through is of some concern because it suggests the lack of buyers, or one strong seller.

If enough buying pressure comes in to overtake the seller then look for a surge into the dynamic resistance at 105.628. If the rally stalls and sellers re-emerge then the focus will shift to the uptrending 50-day moving average at 103.845 and the 200-day moving average at 103.771.

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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