US Dollar (DXY) Index News: Up from 3-1/2 Week Low Ahead of Powell’s Testimony

U.S. Dollar Edges Higher as Markets Await Powell’s Testimony

The U.S. dollar index rose slightly on Tuesday, reaching 105.13 after hitting a 3-1/2-week low of 104.80 on Monday. This modest recovery comes as traders anticipate Federal Reserve Chair Jerome Powell’s congressional testimony, scheduled for Tuesday and Wednesday.

At 13:36 GMT, the U.S. Dollar Index is trading 105.022, up 0.008 or +0.01%.

Market Expectations and Rate Cut Probabilities

Following last week’s unexpected dip in U.S. job numbers, market sentiment has shifted towards potential rate cuts. The CME Group’s FedWatch Tool indicates a 76% likelihood of a rate cut in September, up from 66% a week ago. Traders are also pricing in an additional cut by December.

Euro and Sterling Performance

The euro traded at $1.0819, slightly lower but near Monday’s four-week peak of $1.0845. Sterling also experienced a minor decline, trading at $1.2799 after reaching its highest level since June 12 on Monday at $1.28455.

Key Economic Data on the Horizon

Traders are closely watching the U.S. Consumer Price Index (CPI) report scheduled for Thursday. Recent months have seen inflation numbers cooling from their earlier peaks. The CPI data, combined with Powell’s congressional testimony, will likely shape market perceptions of the Fed’s next moves. These insights could significantly influence dollar trading patterns in the near term.

Treasury Yields and Global Currency Movements

U.S. Treasury yields climbed on Tuesday, with the 10-year yield rising over 2 basis points to 4.291% and the 2-year yield increasing by more than 1 basis point to 4.633%. The Japanese yen remained steady at 160.93 per dollar, showing little reaction to speculation about potential Bank of Japan policy changes.

Gold Market Update

Gold prices saw a slight increase, with spot gold up 0.2% at $2,363.69 per ounce. Analysts suggest that dovish comments from Powell could push gold closer to the $2,400 level. Physical gold demand is expected to rebound towards year-end, potentially driving prices to the $2,400-$2,600 range in the second half of 2024.

Market Forecast

The short-term outlook for the U.S. dollar appears bearish. With increasing expectations of rate cuts and potential dovish signals from Powell, the dollar may face further selling pressure in the coming days.

Technical Analysis

The U.S. Dollar is inching higher on Tuesday, but struggling with the 50-day moving average at 105.082. While initally providing resistance, this indicator is also a potential trigger point for an acceleration to the upside.

However, if the 50-day MA continues to stop the dollar index then sellers could regain control, which could eventually lead to a break into the 200-day moving average at 104.475.