US Dollar (DXY): Greenback Edges Higher Ahead of Consumer Inflation Data

Highlights

• Dollar rebounds from Friday’s plunge.
• Market reassured about the Federal Reserve’s rate hike program.
• Attention turns to upcoming inflation data and Fed speakers.

Overview

The dollar showed signs of recovery on Monday after a steep plunge in reaction to weaker-than-expected U.S. job gains on Friday. The greenback benefited from higher Treasury yields, pushing the dollar index up by 0.13% to 102.44. While the employment report indicated strong wage growth, it also eased concerns about the Federal Reserve’s rate hike program. Despite previous expectations of rate cuts later in 2023, the data suggested a possible end to the program in the near future.

Dollar Rebound Impacts Major Currencies

The dollar’s decline on Friday and subsequent rebound on Monday had a broad impact across various currency pairs. The euro dipped by 0.1% to $1.096 after a 0.7% jump on Friday, while sterling lost 0.26% to $1.2802 following its 0.79% surge the previous session. The dollar also rose against the Japanese yen, climbing as much as 0.55% and settling at 142.55, recovering from a 1.3% slide on Friday.

Dollar/Yen Especially Sensitive

The dollar/yen pair is especially sensitive to U.S. yields, which dropped after the employment data, given Japan’s near-zero interest rates. The current market movements can be seen as a correction to the overreaction witnessed on Friday, as the initial response to the nonfarm payrolls report was excessive.

US Inflation Data, Fed Speakers on Tap

Moving forward, market focus shifts to U.S. inflation data scheduled for release on Wednesday. Investors anticipate a 5% rise in core CPI on an annual basis in June. Additionally, remarks from various Fed speakers, including Cleveland Fed President Loretta Mester and San Francisco Fed President Mary Daly, will be closely watched for any indications about the future of interest rates.

Fed Expected to Raise Rates at July Meeting

The Federal Reserve is widely expected to proceed with a rate hike at its upcoming meeting, despite the slightly disappointing June jobs report. The report did reveal stronger wage growth of 4.4% compared to a year ago. The central bank aims to bring inflation closer to its target range of 2% and may implement multiple rate increases in the remaining meetings scheduled for this year.

This week, the Fed will also analyze key economic reports, including the consumer price index for June, to inform its future policy decisions.

Technical Analysis

US Dollar (DXY) sentiment is leaning toward the bearish side as the current price falls below key moving averages. With the 4-hour price at 102.467, lower than both the 200-4H moving average of 104.606 and the 50-4H moving average of 102.926, a downward trend is evident. The 14-4H Relative Strength Index (RSI) reading of 44.50 suggests neutral-to-bearish sentiment, without extreme overbought or oversold conditions.

While the main support area lies between 101.930 and 102.113, the main resistance area ranges from 103.280 to 103.424. Based on these technical indicators, the US Dollar market is currently showing a bearish outlook with 101.930 a potential trigger point for an acceleration to the downside.