U.S. Dollar (DXY) Gains Ground As Consumer Mood Improves

Key Insights

• U.S. dollar is trying to rebound ahead of the weekend. 
• Michigan Consumer Sentiment report exceeded analyst expectations, providing additional support to the American currency. 
• A move above the 50 EMA will push DXY towards the 20 EMA at 106.10.

U.S. Dollar Rebounds After The Sell-Off

The U.S. Dollar Index is moving higher after the release of the preliminary Michigan Consumer Sentiment report. The report indicated that Consumer Sentiment improved from 51.5 in July to 55.1 in August, compared to analyst consensus of 52.5.

Consumer activity is very important for the U.S. economy, so the improvement in consumer mood is a good sign. However, it should be noted that Consumer Sentiment remains at historically low levels. In this light, a technical bounce is not surprising, and the key question is whether consumer mood will continue to improve in the upcoming months.

The FedWatch Tool indicates that there is a 63.5% probability of a 50 bps rate hike at the next Fed meeting. The market’s view on the next Fed move stabilized, providing some support to the U.S. dollar. While a 50 bps hike looks like the leading option after the release of the recent inflation reports, markets believe that chances of a 75 bps hike exceed 30%.

What’s Next For The U.S. Dollar?

The U.S. dollar is trying to rebound after the recent sell-off. The markets have calmed down after the surprising inflation reports, and some traders look ready to buy the American currency.

Interestingly, the S&P 500 continues to rally, highlighting the growing demand for riskier assets. At the same time, the safe-haven U.S. dollar also managed to get some support.

Currently, DXY is trying to settle back above the 50 EMA at 105.45. In case this attempt is successful, it will move towards the 20 EMA at 106.10, which will be bearish for EUR/USD and GBP/USD.

For a look at all of today’s economic events, check out our economic calendar.