- A sharp recovery in US Dollar triggered by cautious market sentiment.
- Bets for interest rate cut at the September Fed meeting continue to receive pressure from Fed officials.
- US Treasury yields also fuel recovery in USD with 2-year yield rising to 5.00%.
The US Dollar Index (DXY) is showing a sharp recovery, hovering around the 105.00 mark on Wednesday. Amid this climate, investors remain risk-averse. As Federal Reserve (Fed) officials’ continuous asking for patience has resulted in reduced bets on a rate cut for the upcoming September Federal Open Market Committee (FOMC) session. As a reaction, US Treasury yields recovered.
As the US economy remains strong, the likelihood of cuts in June and July remains low, with markets keenly looking forward to data that would aid in placing bets for the September meeting.
Daily digest market movers: DXY recovers as markets await drivers
- Investor expectations see a rate cut to start in the last quarter of the year.
- The Fed Beige book report from April to mid-May showed that national economic activity saw slight growth, with mixed conditions across industries and districts; retail and auto sales were flat, but travel and tourism strengthened.
- The report also stated that employment rose slightly, wage growth was moderate, and prices increased modestly as consumers resisted further price hikes.
- In addition, housing demand rose modestly, commercial real estate softened, and overall economic outlooks became more pessimistic amid rising uncertainty.
- US Treasury yields soared and the 2-year yield rose to 5%, while the 5 and 10-year rates gained to 4.63% and 4.62%, respectively.
DXY technical analysis: US Dollar makes remarkable recovery, bulls aim to consolidate above 105.00
The daily chart indicators signify a recovery in the DXY. The Relative Strength Index (RSI) rose above the 50 level, indicating reduced selling pressure and a potential shift in momentum. To further establish bullish momentum, the DXY managed to regain territory above the 20-day Simple Moving Average (SMA).
The Moving Average Convergence Divergence (MACD) displays fading red bars, suggesting a potential end of the bearish trend and an onset of bullish sentiment. For the bulls to continue gaining ground, consolidation above 105.00 would be required.
