Dollar consolidates gains as attention turns to US data.

• The US dollar is holding firm against its rivals at the start of the week.
• The US Dollar Index is trading at multi-week highs after last week’s rally.
• The Fed’s bullish bets continue to support the US dollar.

He American dollar (USD) maintains its strength at the beginning of the week, despite little trading during the US Memorial Day holiday. The US Dollar Index (DXY), which measures the dollar’s performance against a basket of six major currencies, is holding steady above 104.00 after gaining 1% last week.

Following the release of the latest encouraging US macroeconomic data, investors are reassessing the Fed’s monetary policy outlook and now see a higher likelihood that the US central bank will raise the policy rate yet again in June. In turn, the dollar continues to find demand thanks to the rise in US Treasury bond yields.

In the second half of the week, market participants will closely monitor the ISM Manufacturing PMI, ADP Employment Change, and the May employment report from the US Bureau of Labor Statistics.

Daily Summary of Market Movements: Dollar Holds Firm Against Rivals

The US Bureau of Economic Analysis (BEA) reported on Friday that inflation in the US, measured by the change in the Personal Consumption Price Index (PCE), rose to 4.4% annually in April, from 4.2% in March.
The core PCE price index, the Federal Reserve’s preferred inflation gauge, rose to 4.6%, versus 4.6% expected by the market.
Other details from the BEA release showed that personal income rose 0.4% per month, while personal spending rose 0.8%.
Cleveland Fed President Loretta Mester told CNBC on Friday that the PCE price index data underscores the sluggishness of inflation. “It is important that the Fed does not tighten monetary policy too much,” Mester added.
According to CME Group’s FedWatch tool, markets currently price at less than 40% the probability that the Federal Reserve will leave monetary policy unchanged at the next meeting.
On Sunday, US President Joe Biden and Republican House Speaker Kevin McCarthy reached an agreement to temporarily suspend the borrowing limit to prevent a US debt default. The House of Representatives and the Senate still must approve the agreement, which will suspend the debt limit of 31.4 trillion dollars until January 1, 2025, in the coming days.
The US stock and bond markets will remain closed on Monday.
On Tuesday, the Conference Board will release May consumer confidence index data.

US Dollar Index Technical Analysis: Bullish Outlook Remains Near-Term

The Relative Strength Index (RSI) on the daily chart is holding near 70, suggesting that the US Dollar Index (DXY) could become technically overbought in the near term. Should the DXY make a technical correction, 104.00 (23.6% Fibonacci retracement of the Nov-Feb dip) lines up as key support. A daily close below that level could attract USD sellers and open the door for a prolonged slide towards 103.00, where the 100-day SMA is located.

If the DXY continues to use 104.00 as support, buyers are likely to remain interested. Additionally, the bullish crossover of the 20-day and 50-day SMAs points to a buildup of momentum. To the upside, 105.00 (psychological level, static level) lines up as next resistance ahead of 105.60 (200-day SMA, 38.2% Fibonacci retracement).

DXY FAQ

whatWhat is the US dollar?

The US dollar (USD) is the official currency of the United States of America and the “de facto” currency of a large number of countries where it circulates alongside local banknotes. It is the most traded currency in the world, accounting for more than 88% of all global currency movement, or an average of $6.6 trillion in transactions per day, according to 2022 data.
After World War II, the USD took over from the British pound as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement of 1971, when the gold standard disappeared.