US Dollar Index News: DXY Traders Cautiously Await US July Payrolls Data

Highlights

• U.S. dollar trades flat, awaiting payrolls data.
• Sterling rebounds after Bank of England rate decision.
• Euro rises slightly, Bank of Japan’s policy influences yen.

Overview

As we close out the week, the U.S. dollar (DXY) is trading nearly flat after testing a four-week high the previous session. Traders are awaiting the monthly nonfarm payrolls report that could alter the trajectory for U.S. interest rates. On Friday, the dollar index slipped 0.07% to 102.38 after peaking at 102.84 the day prior, its highest since July 7. Notably, the foreign exchange market seems wary of taking significant positions ahead of the jobs data, especially given the recent uptick in Treasury yields.

DXY Supported by Higher Treasury Yields

Today’s much-anticipated jobs report will provide insight into the U.S. economy’s health and potentially influence the Federal Reserve’s upcoming policy decisions. As of 11:25 a.m. ET, the 10-year Treasury yield held steady at 4.186%, echoing levels from November 2022. Meanwhile, the 2-year Treasury increased by over two basis points to 4.925%.

NFP on Tap with Focus on Average Hourly Earnings

Economists project a 200,000 increase in July’s nonfarm payrolls, a slight dip from June’s 209,000 rise and the smallest uptick since December 2020. The unemployment rate is anticipated to remain unchanged at 3.6%, with hourly wages predicted to increase 0.3% month-over-month and 4.3% year-over-year. These figures could demonstrate whether the Fed’s interest rate hikes are effectively moderating the economy, guiding the central bank’s next policy talks and decisions.

British Pound Rebounding

In the UK, Sterling bounced back from an initial drop following the Bank of England’s (BoE) decision to reduce its rate hike to a quarter point. Despite this, Sterling rose 0.17% to $1.27305 on the back of the BoE’s warning that high rates would likely persist, provided the UK economy avoids a recession.

Yen Flat, Euro Higher as Investors Track Treasury Yields

Elsewhere, the Japanese yen remained stagnant amid uncertainty over the Bank of Japan’s acceptance of higher yields after a surprising policy change. Meanwhile, the euro gained 0.06% to $1.09585, as the European Central Bank suggested a potential pause in its September meeting due to declining inflation and weakening growth. The dollar-yen movement appears contingent on U.S. Treasury yield fluctuations, with no significant change expected barring a drastic shift in risk sentiment.

Short-Term Forecast:  Data Dependent

Look for the dollar to strengthen if the Non-Farm Payrolls data comes in stronger than expected. Conversely, the DXY could slide if the report misses to the downside.

Technical Analysis

The US Dollar Index (DXY) is displaying bullish market sentiment, with the current 4-hour price of 102.593 trading above both the 200-4H (101.844) and 50-4H (101.873) moving averages, indicating a persisting uptrend. The 14-4H Relative Strength Index (RSI) reads 60.32, suggesting stronger momentum, further aligning with bullish sentiment.

The current price is operating between the main support area (99.630 to 100.016) and resistance area (103.280 to 103.424), allowing room for further navigation before testing these levels. Therefore, based on the provided technical indicators, DXY exhibits a bullish market trend.