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Bond Rates Going Up Give the US Dollar a Boost

Leon Kramer

ByLeon Kramer

Jul 23, 2023

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During the Asian session on Friday, there was limited activity observed. However, as the European session commenced, there was an increase in demand for the US Dollar. The US Dollar Index (DXY), which monitors the USD’s value against a selection of six major currencies, continued its upward trend for the week and surpassed the 101.00 mark, marking its first occurrence over a week.

Capital outflows from the Japanese Yen were observed on Friday, resulting in the USD gaining momentum and contributing to the DXY’s upward movement. According to five sources familiar with the matter, Reuters reported on Friday that the Bank of Japan was considering the possibility of maintaining its yield curve control (YCC) strategy at the upcoming policy meeting scheduled for next Friday. Expectations of a more dovish stance from the Bank of Japan prompted a selling spree of the Japanese Yen, consequently giving a lift to the United States dollar.

The economic calendar in the United States will not present any significant data releases that may influence the performance of the USD against other currencies leading up to the weekend. Investors should avoid substantial positions as they prepare for the upcoming Federal Reserve policy announcements, which are expected to generate significant interest. 

Market Moves for the Day: the US Dollar Keeps Its Strength on Friday

  • In the week ending July 15, the US Department of Labour reported a decrease in initial unemployment benefit applications to 228,000. The reported figure fell significantly short of the market’s projected expectation of 242,000, positively impacting the US Dollar Index. According to additional data, there was a 3.3% decrease in Existing Home Sales during June, following a modest 0.2% growth observed in May.
  • The main indexes on Wall Street commenced trading with a varied performance on Friday. As of the latest update, the Nasdaq Composite registered a 0.3% increase, whereas the Dow Jones Industrial Average experienced a 0.1% decline.
  • According to a recent report by The Wall Street Journal, it has been stated that the United States has prohibited 14 Iraqi banks from utilizing the USD in their transactions. This action has been taken due to suspicions of these banks potentially channeling USDs to Iran.
  • The ambassador representing China in Washington, Xie Feng, stated on Wednesday evening that China would take action if the United States imposed additional restrictions on its chip industry.
  • The Manufacturing Index of the Federal Reserve Bank of Philadelphia experienced a marginal increase, moving from -13.7 in June to -13.5 in July.
  • According to the GDPNow model of the Federal Reserve Bank of Atlanta, a projected 2.4% growth in the United States Gross Domestic Product (GDP) is anticipated for the second quarter.
  • According to the latest monthly data from the US Census Bureau, there was an 8% decline in Housing Starts for June. This decrease comes after a previous increase of 15.7% (revised from +21.7%) in May. During the corresponding time frame, there was a decline of 3.7% in Building Permits, which marked a reversal from the previous month’s growth of 5.6%.
  • According to the US Census Bureau, there was a 0.2% increase in retail sales in June, reaching $689.5 billion. The anticipated growth of 0.5% in June, following the 0.3% increase observed in May, fell short of expectations as the reported data fell significantly lower. Retail Sales Ex-Autos experienced a modest 0.2% growth during the corresponding timeframe, falling slightly short of the market’s anticipated 0.3% outcome. 
  • According to data released Tuesday by the US Federal Reserve, there was a consecutive contraction of 0.5% in Industrial Production in the US during June.
  • According to Bloomberg, it has been suggested by US Treasury Secretary Janet Yellen that there is a possibility of the Biden administration implementing outbound investment controls on China.
  • Last week, there was a notable decline in the value of the US Dollar due to the release of inflation data that was below expectations. This led to renewed speculation about the Federal Reserve potentially implementing a 25-basis-point rate increase in July, which is seen as a significant milestone.
  • The US experienced a 3% year-on-year increase in the Consumer Price Index (CPI) for June, which followed a 4% rise observed in May. In the corresponding timeframe, a marginal increase of 0.1% was observed in the annual Producer Price Index (PPI).
  • According to Antje Praefcke, an FX Analyst at Commerzbank, if inflation continues to decline rapidly and economic data weakens, there is a growing possibility that the market will place less confidence in the sustainability of high-interest rates. This could increase the likelihood of rate cuts before the year ends. The potential outcome could lead to a further easing of the USD.

Technically Speaking, the US Dollar Index Is Looking for a Long-Term Rise

The Relative Strength Index (RSI) indicator on the daily chart has surpassed the 40 levels, indicating potential further upside for the US Dollar Index (DXY) before reaching a neutral state. The DXY has experienced a weekly increase of over 1%, potentially breaking two weeks of decline.

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The value of 101.00, previously identified as a support level, now serves as a significant pivot point for DXY. A potential weekly close above the mentioned level may pave the way for a possible upward movement toward 101.50 (a fixed group), 101.80 (a 20-day Simple Moving Average), and 102.00 (a psychological level).

On the bearish side, a static level of 100.50 is observed to serve as interim support before reaching the psychological level of 100.00. If the DXY index concludes the day below the story above, 99.20 (a fixed point established in March 2022) may emerge as a subsequent level of support.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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