- The DXY index extends recent gains well beyond the 90.00 level.
- Favorable data and higher bond yields prop up the dollar.
- May’s NFP Nonfarm Payrolls will focus investors’ attention.
The US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, remains optimistic during the European session on Friday and rises to new multi-week highs around 90.60.
The US dollar DXY index focuses attention on the NFP
The DXY index extends the gains recorded in the second half of the week, well above the critical level of 90.00, after better-than-expected data on the US economic calendar and the rebound in bond yields Americans.
Indeed, yields on the key US 10-year bond manage to regain the 1.60% level on Friday, as market participants continue to adjust to strong figures from ADP report for May (978,000 vs. 650,000 expected) all before the release of the NFP nonfarm payroll report at the start of the US session.
The dollar gained additional ground in response to the growing speculation of further improvement in the labor market, which in turn could be transformed into rumors about a reduction in the purchase of bonds by the Fed due to expectations of higher inflation next month. Against this point of view, as usual, is the majority of the FOMC governors and the future direction of the Fed.
Regarding the latter, J. Williams of the New York Fed considered any modification of the QE program premature for the moment, although he did not rule out that scenario in the future. Instead, R. Kaplan of the Atlanta Fed advocated for the early start of the conversation about tightening monetary policy.
Turning to US data, the economy is expected to have added 650,000 new jobs in May, while the unemployment rate is expected to decline to 5.9% in the same month.
What can we expect around the USD?
The DXY index manages to extend the bounce above the key 90.00 level at the end of the week. The very short-term outlook for the dollar appears to have improved thanks to the release of better-than-expected data in recent days, although it remains on the long-term negative side. This view is supported by the Federal Reserve’s persistent mega-accommodative stance (until “further substantial progress” in inflation and employment is made) for the foreseeable future and growing optimism about a strong global economic recovery.
Key events in the US this week: NFP Nonfarm Payrolls, Factory Orders (Friday).
Eminent Background Topics: Biden’s bill to boost infrastructure worth nearly $ 6 trillion. 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?
Relevant levels of the US dollar DXY index
At the time of writing, the DXY index is gaining 0.06% on the day, trading at 90.54. A breakout of 90.62 (June 4 high), would open the door to 90.90 (May 13 high) and finally 91.06 (100-day SMA). On the other hand, the next support is at 89.53 (May 25 low), followed by 89.20 (January 6 low) and 88.94 (March 2018 low).
.
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
