- The DXY index reverses the recent weakness and recovers the 90.50 area.
- US 10-year yields rose to about 1.60% on Thursday.
- PCE data, trade balance, and personal income / expenses data stand out on today’s economic calendar.
The US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, regains its composure and climbs back above the 90.00 barrier and well beyond at the start of the European session on Friday.
US dollar DXY index rises on rising yields, focus is on data
The index quickly reversed the slide to fresh 7-week lows on Thursday, from below the 90.00 level, due to a strong rally in US bond yields. In particular, the 10-year Treasury bond advanced to close to 1.60% at levels last seen in February 2020.
The strong movement in yields motivated investors to withdraw recent gains on risk assets and accelerated money flows to the US dollar as a safe haven.
There are no changes in the larger scenario, which is still dominated by the advance of vaccination, the bets for a strong economic rebound in the second half of 2021 (both in the US and in the rest of the world) and the ultra-accommodative posture recently strengthened by the Federal Reserve.
Regarding US data, today will be released the inflation figures measured by the PCE (the Fed’s preferred indicator), personal income / expenditure data, advanced results of the trade balance and the final reading of consumer sentiment from the University of Michigan for the month of February.
What can we expect around the USD?
The DXY index manages to climb back above the 90.00 level, and well beyond, from the multi-week lows near 89.70 on Thursday. The reversal of the weekly decline has occurred alongside the sharp rebound in yields to levels last recorded a year ago. While reflation trading and vaccination continue to limit bullish attempts on the dollar, bouts of concern regarding a pickup in inflation (and inflation expectations) stemming from the expected additional fiscal stimulus could provide some pockets of strength for the dollar for the moment. Against this, the occasional rise in the dollar should remain short-lived amid the fragile overall outlook for the currency in the medium / long term. This is underpinned by the Fed’s (reinforced) accommodative stance until “additional substantial progress”, additional fiscal stimulus, and prospects for a strong recovery in the global economy are seen, which are seen to underpin better confidence in the economy. appetite for risk.
Key events this week in the US: Inflation figures measured by the PCE and the final reading of consumer sentiment (Friday).
Eminent Background Topics: Trade conflict between the United States and China under the Biden administration. Reduction of speculation in the face of economic recovery. Real US interest rates versus Europe. Could US fiscal stimulus cause overheating? Future of the Republican Party after Trump’s acquittal.
Relevant levels of the US dollar DXY index
At the time of writing, the DXY index is gaining 0.29% on the day, trading at 90.39. A breakout of 91.05 (February 17 high) would open the door to 91.32 (100-day SMA) and finally 91.60 (February 5 high). On the other hand, the next support is at 89.68 (February 25 low), followed by 89.20 (January 6 low) and 88.94 (March 2018 low).
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