- The DXY index is moving higher and is approaching the 91.00 level.
- Yields on US 10-year bonds are approaching 1.70%.
- Initial jobless claims and US PPI producer prices will be released today.
The US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, extends Wednesday’s strong gains and is approaching the key barrier of 91.00 Thursday.
DXY US Dollar Index Strengthens with Higher Yields and Inflation
The DXY index advances for the second day in a row and gradually approaches the barrier of the 91.00 level. thanks to improved sentiment around the dollar.
In fact, the dollar has regained attention after US inflation figures for the month of April surprised to the upside on Wednesday. In fact, overall consumer prices increased 0.8% month-on-month and 4.2% year-over-year, while underlying prices increased 0.9% month-on-month and 3.0% during the last twelve months.
However, it is worth remembering that R. Clarida, of the FOMC, once again refuted the current episodes of higher inflation, considering them transitory, while expecting inflation to exceed the Fed’s 2% target next year and in 2023, and also voiced concerns about rising inflation and uncertainty around the labor market.
Higher than expected results pushed yields higher and underpinned new demand for the US dollar, prompting the DXY index to extend the bounce from the monthly lows near the 90.00 level.
Regarding US data, initial weekly jobless claims and IPP producer prices for the month of April will be released today. Additionally, C. Waller from the FOMC and J. Bullard from the St. Louis Fed will speak during the American session.
What can we expect around the USD?
The DXY index extends the recovery in the second half of the week and is targeting the key 91.00 barrier in the near term. Recent bouts of risk aversion have lent some much-needed oxygen to the dollar, although the negative stance on the currency appears to dominate the larger picture for now. This view has been exacerbated after the April NFP, adding at the same time to sentiment around the impending full reopening of the US economy, the relentless strength of national fundamentals, the strong launch of the vaccination campaign and the resurgence of market rumors regarding an earlier-than-expected adjustment in bond buying by the Fed. The latter occurs despite the Fed’s efforts to lower this scenario, at least for the next few months.
Key events in the US this week: Initial Unemployment Claims (Thursday) – Retail Sales, Industrial Production, Consumer Sentiment for May (Friday).
Eminent Background Issues: Biden’s bill to boost nearly $ 4 trillion worth of infrastructure. 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 0.03% on the day, trading at 90.79. A breakout of 91.07 (100-day SMA) would open the door at 91.43 (May 5 high) and at 91.69 (50-day SMA). On the other hand, immediate support is at 89.98 (May 11 low), followed by 89.68 (February 25 low) and 89.20 (January 6 low).
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