US Dollar Index News: DXY Higher Amid Strong US Labor Market Data, Weak Sterling

Highlights

• US Dollar Index (DXY) soars on robust US labor data.
• Sterling dips following BoE’s cautious rate hike.
• Anticipated US Treasury auctions boost dollar’s outlook.

Overview

The US dollar Index (DXY) soared to a four-week high against six major currencies, boosted by positive labor market data and increased US Treasury bond auctions. Meanwhile, the UK pound faltered following a smaller than anticipated rate hike by the Bank of England.

Recently released data unveiled a healthier than expected increase in US private payrolls in July. The US Treasury’s plans to amplify the scale of government bond auctions in Q3 have also contributed to the dollar’s ascent, driving longer-dated US Treasury yields higher. The US continues to show robust performance, avoiding economic downturns experienced by other nations and maintaining the dollar’s elevated position.

All Eyes on US Non-Farm Payrolls Report

The dollar index, which benchmarks the dollar’s value against six major currencies, ascended to its highest level in four weeks at 102.84. This increase is subsequent to a 0.5% gain on Wednesday. However, all eyes remain on the imminent US nonfarm payrolls report due on Friday. Adding to the dollar’s strength, the Fitch rating agency’s downgrade of the US government’s top credit rating could have spurred some safe-haven buying, paradoxically boosting the dollar.

In contrast, the pound dipped 0.7% to $1.2620, hitting a low unseen since June 30. The Bank of England’s decision to increase its key bank rate by just 25 basis points, as opposed to an unexpected half-point move in June, caused the pound’s decline. Despite recent momentum fueled by a relative disparity in monetary policy trajectories and better-than-expected economic growth data, signs indicate the Bank is becoming more relaxed on the direction of travel.

After the release of reports on weekly unemployment claims and job cuts, traders are now bracking for ISM Services PMI data as well as factory orders.

Short-Term Forecast

The short-term outlook predicts a continued bullish trend for the dollar, buoyed by strong labor market data and anticipated government bond auctions. Meanwhile, sterling is expected to remain bearish in the short term as the market absorbs the effects of the Bank of England’s cautious rate hike and the latest inflation numbers. Other currencies to watch include the safe-haven yen, currently benefiting from global risk aversion, and the Aussie, which fell to a two-month low.

Technical Analysis

The US Dollar Index (DXY) shows a bullish trend with the current 4-hour price (102.758) above both the 200 and 50-4H moving averages (101.846 and 101.734 respectively). The 14-4H RSI of 66.45 implies stronger buying momentum.

Although DXY trades well above the main support area, it is approaching the main resistance area, indicating potential bullish continuation. However, nearing overbought conditions may suggest upcoming short-term volatility or a possible pullback.