US Dollar (DXY): Stabilizing Amid Fluctuating Bond Market and Fed Remarks

Highlights

• Dollar stabilizes amid bond market fluctuations
• Economic data and Fed remarks influence interest rate direction
• Conflicting statements from Fed policymakers add to uncertainty

Overview

On Wednesday, the dollar stabilized following a period of volatility alongside fluctuations in the bond market, as investors closely examined U.S. economic indicators, Federal Reserve remarks, and corporate earnings to gain insight into the future direction of interest rates.

At 05:51 GMT, June US Dollar Index futures are trading 101.510, up 0.062 or +0.06%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.73, down $0.09 or -0.34%.

US Dollar Investors Watch Treasury Yields Ahead of May Fed Meeting

Investors in the US Dollar are paying close attention to Treasury yields, with the yield on the 10-year Treasury note inching lower while the US two-year Treasury yields reached an almost one-month high. The stall in the long end of the market may be an opportunity for investors to lock in better yields.

Wall Street is monitoring economic data to assess where the Federal Reserve may take interest rates at its policy meeting in May, with more than 86% of traders calling for a 25 basis point hike. Strong economic data could convince the central bank it has more hiking to do to temper high inflation.

Conflicting Fed Statements Bring Uncertainty for US Dollar Investors

Investors in the US dollar are facing uncertainty leading up to the FOMC policy meeting on May 2-3. This is due to conflicting statements from Fed policymakers.

St. Louis Fed chief James Bullard expressed a preference for 75 basis points of additional tightening. However, the market consensus is for one more 25 basis point hike next month. And with the potential for rate cuts later in the year.

Atlanta Fed President Raphael Bostic, in contrast, expects only one more quarter point hike followed by a prolonged pause.

The market has accepted a 25 basis point hike at the May meeting. However, fluctuating expectations regarding rate cuts are causing volatility in the US bond market. The resulting bond market volatility is driving the value of the dollar, rather than the other way around.

Technical Analysis

From a daily technical viewpoint, June US Dollar Index futures are trading inside a pivot zone at 101.450 – 101.695. The technicals appear to be in favor of a downside move. Overtaking 101.695 could extend the rally into 102.310.  Meanwhile, a break back under 101.450 will be a sign of weakness. This could create the downside momentum needed to challenge the support cluster at 100.420 – 100.345.

For a look at all of today’s economic events, check out our economic calendar.