US Dollar Index News: DXY Eyes Upside Breakout as Euro Weakens, Yields Rise

Key Points

• Dollar Index reverses, hints at potential upside breakout.
• Treasury yields rise, influencing Fed rate decision expectations.
• ECB’s upcoming policy decision impacts Dollar Index outlook.

US Dollar Index Posts Intraday Reversal

The U.S. Dollar Index is trading higher against the major currencies on Tuesday, after reversing earlier weakness. This move is being supported by a slight rise in Treasury yields and a notable drop in the Euro. This movement, following a period of consolidation, suggests the market is poised for a potential upside breakout.

At 14:10 GMT, the U.S. Dollar Index (DXY) is trading 103.446, up 0.087 or +0.08%.

Treasury Yields and Economic Data Anticipation

Treasury yields are seeing a modest rise as investors await crucial economic data releases. The 10-year Treasury note yield has climbed 4 basis points to 4.132%, while the 2-year yield is up over 3 basis points at 4.413%. These movements are closely watched as indicators of future Federal Reserve interest rate decisions.

Federal Reserve’s Rate Cut Outlook

Market sentiment is currently focused on when the Fed might begin reducing interest rates, a key factor for future market and economic trends. Upcoming reports on fourth-quarter GDP growth and the personal consumption expenditures (PCE) price index are expected to heavily influence these decisions. The anticipation of these reports has led to a less confident view of imminent Fed rate cuts.

Economic Growth and Inflation Data

Economists are predicting a 1.7% growth in the U.S. economy for the fourth quarter of 2023, the slowest since Q2 of 2022. Additionally, the core PCE price index is expected to show a 0.2% monthly growth and 3% annual growth. These figures are crucial as they provide insights into the Fed’s rate path and inflation targets.

European Central Bank’s Role

The European Central Bank (ECB) also plays a significant role in global financial markets. Despite internal criticisms of President Christine Lagarde’s leadership, the ECB’s upcoming monetary policy decision and Lagarde’s subsequent press conference are highly anticipated events that could impact the U.S. Dollar Index and broader financial markets.

Short-Term Forecast

In the short term, the US Dollar Index is likely to strengthen, buoyed by rising Treasury yields and a weaker Euro. Anticipation of key economic data and cautious Federal Reserve rate cut expectations suggest a bullish trend, with market dynamics and upcoming reports being crucial to the index’s trajectory.

Technical Analysis