US Dollar (DXY) Index News: Weakens as Treasury Yields Drop and Economic Data Looms

Dollar Weakens as Markets Await Key Economic Data

The U.S. Dollar retreated against major currencies on Wednesday, influenced by lower Treasury yields and anticipation of crucial economic reports. Traders are particularly focused on upcoming GDP and Core PCE data, which could significantly impact market sentiment.

Treasury Yields Slip

Treasury yields edged lower as investors assessed the U.S. economic outlook. The benchmark 10-year Treasury yield held steady at 4.238%, while the 2-year yield remained at 4.424%. This decline in yields has contributed to the dollar’s weakness and supported gold prices.

Economic Data in Focus

Market participants eagerly await the release of July’s Flash Manufacturing and Services PMI reports. However, the spotlight is on Thursday’s GDP report and Friday’s Core PCE data, which could provide insights into the Federal Reserve’s future monetary policy decisions.

Gold Prices Edge Higher

Gold prices inched up as investors anticipate U.S. economic data that could influence the Fed’s rate-cut timeline. Tim Waterer, KCM Trade’s chief market analyst, noted that strong GDP or core PCE figures could potentially hinder gold’s progress due to dollar strength. However, he maintains a constructive near-term outlook for gold, given expectations of impending Fed rate cuts.

Fed Rate Cut Expectations

A Reuters poll indicates that economists expect the Fed to cut interest rates twice this year, in September and December. This cautious approach is attributed to resilient U.S. consumer demand despite easing inflation. The anticipation of rate cuts has recently driven gold prices to record highs, as lower interest rates reduce the opportunity cost of holding non-yielding assets like gold.

Market Forecast

The short-term outlook appears bearish for the U.S. Dollar and bullish for gold. The combination of falling Treasury yields, expectations of Fed rate cuts, and potential positive economic data could further weaken the dollar while supporting gold prices. However, traders should remain vigilant, as stronger-than-expected economic reports could temporarily strengthen the dollar and pressure gold.

Technical Analysis

For a second straight session, the U.S. Dollar Index is straddling the 200-day moving average at 104.361, but on Wednesday, traders are exploring the weakside of it, making it new resistance.

The near-term target is a minor pivot at 104.103. A test of this level could attract aggressive counter-trend buyers. If this fail to show up, then look for the selling to possibly lead to a restest of 103.650.

Overtaking the 200-day moving average and the minor top at 104.555 could trigger an upside breakout into the 50-day moving average at 104.888.