US Dollar Index News: DXY’s Dips as Treasury Yields Soar, Retail Sales Loom

Highlights

• DXY edges down 0.2% despite rising U.S. Treasury yields.
• U.S. retail sales data: Anticipated 0.4% monthly spending rise.
• Retail sales outperformance could bolster the U.S. Dollar.
• DXY under threat if sales data underwhelms expectations.

Overview

The U.S. Dollar Index (DXY), which gauges the greenback against a basket of six major currencies, edged down by 0.2% on Tuesday, even amidst soaring U.S. Treasury yields. Notably, the dollar declined against the British Pound and the Euro, remained stable against the Canadian Dollar, and increased when matched with the Canadian Dollar. Despite this, the benchmark 10-year U.S. Treasury yield reached a nine-month peak, suggesting robust economic prospects.

Anticipation for Retail Sales Data Amidst Rate Hike Speculations

As the U.S. anticipates the latest retail sales data, which is projected to indicate a 0.4% surge in monthly spending, the 10-year Treasury yield settled at 4.225%. This figure represents a sharp escalation, given that the yield had peaked at 4.229%, its highest since November of the previous year. Market analysts largely believe that, regardless of this data, the Federal Reserve has likely concluded its series of interest rate hikes. Contrary to this, money market experts anticipate a possible Fed rate cut by the first half of 2024.

Pound Strengthens Amidst UK Wage Growth and Labor Market Dynamics

In the UK, the pound experienced a boost against the dollar following reports of a record surge in wages during Q2. Excluding bonuses, wages climbed by 7.8% YoY for the three months leading to June — a record since 2001. However, the labor market exhibited signs of slowing momentum. The unemployment rate ascended unexpectedly to 4.2% — the most significant rise since October 2021. Amidst these figures, traders now anticipate a 25 basis point rate hike from the Bank of England come September.

Bank of England Faces Inflation Dilemma

With wage growth in June intensifying, there’s heightened concern over inflationary repercussions. The unexpected rise in pay growth heightens worries of ongoing price pressure. BoE’s Governor, Andrew Bailey, acknowledged this growth rate as “materially above” the bank’s projections. However, there’s speculation that the BoE may pause its streak of rate hikes. Eyes now turn to July’s inflation data, set to release on Wednesday, which is anticipated to reveal further moderation in consumer prices.

Short-Term Forecast Based on Retail Sales Outcomes

Better-than-expected Retail Sales

Should retail sales outperform expectations, market sentiment would likely lean towards the belief that the U.S. economy is demonstrating resilience and strength. This positive data would reinforce the perception that the Federal Reserve would need to hold rates steady for longer as the economy is on a solid footing. Consequently, maintaining the current interest rates or even hinting at potential rate hikes could bolster the U.S. Dollar. We might see a surge in the Dollar Index (DXY) as investors seek the safety and returns offered by a stronger dollar and U.S. assets.

Worse-than-expected Retail Sales

On the flip side, if retail sales data falls short of projections, it could raise concerns about the health and momentum of the U.S. economy. Such a scenario might fuel speculations that the Federal Reserve may reconsider its stance and introduce rate cuts sooner than expected. This potential dovish shift could weaken the U.S. Dollar as lower interest rates generally reduce foreign capital inflows. The Dollar Index (DXY) could face downward pressure in response to this sentiment, with investors seeking opportunities elsewhere in anticipation of reduced yields from U.S. assets.

Technical Analysis

The US Dollar Index (DXY) currently stands at 103.069, marking a slight increase from its previous 4-hour close of 103.008. This increment shows a positive momentum.

When we look at the moving averages, the DXY is above its 200-4H moving average of 101.803, indicating a bullish trend. It is also slightly above the 50-4H moving average of 102.532, suggesting short-term strength. The 14-4H RSI stands at 60.04, indicating that the market is showing stronger momentum.

With the current price positioned between the main support area (101.967 to 101.742) and nearing the main resistance area (103.280 to 103.424), the market leans towards a bullish sentiment but could face resistance shortly.