US Dollar (DXY): Rebounding after Hitting 5-Week Low as Treasury Yields Rise

Highlights

• US Dollar recovers with rising Treasury yields.
• Elevated jobless claims indicate potential influence on Fed’s rate hikes.
• Powell’s remarks align with market expectations, but doubts persist.

Overview

The US Dollar regained its footing against major currencies on Thursday, recovering from earlier losses. The market turned bullish as Treasury yields climbed following the release of weekly initial claims data. Despite the US labor market’s surprising resilience, the persistently high number of Americans applying for unemployment benefits could indicate a cooling trend that may influence Federal Reserve rate hikes.

Jobless Claims Steady at 264,000, Surpassing Expectations

According to the Labor Department’s report on Thursday, jobless claims for the week ending June 17 remained unchanged from the previous week at 264,000, slightly exceeding analysts’ expectations. This marks the highest level in claims since October 2021. The four-week moving average, which smooths out volatility, rose by 8,500 to 255,750, reaching its highest point since November 2021.

Over the past three weeks, jobless claims have inched closer to the 300,000 mark, deviating from the range of high 100,000s to low 200,000s seen since the fall of 2021. However, Federal Reserve officials have previously stated that a significant rise in the unemployment rate, well beyond 4%, is necessary to combat inflation effectively.

Testing Five-Week Low

Earlier in the session, the US Dollar had been trading near a one-month low against a basket of currencies, as Federal Reserve Chair Jerome Powell reiterated familiar messaging during his semi-annual testimony. Powell’s comments aligned with the central bank’s recent policy meeting, offering little room for surprises.

The greenback had experienced a decline of nearly 0.5% against six major peers in the previous session. Today, the US Dollar index is standing at 101.715, not far from its intra-day and five-week low of 101.485.

Traders Skeptical About Number of Rate Hikes

While Powell’s remarks were in line with market expectations, there is still skepticism regarding the FOMC’s ability to implement two more rate hikes this year. Investors remain cautious, awaiting further developments in the economy.

Intraday Rebound, but Gains Could Be Capped

In conclusion, the US Dollar bounced back after earlier losses. Driving the move were rising Treasury yields and the release of jobless claims data. The labor market’s resilience coupled with elevated unemployment benefits applications suggest a potential slowdown, influencing the Federal Reserve’s rate hike decisions. Powell’s recent remarks reinforced market expectations, causing a temporary dip in the greenback. However, doubts persist regarding the feasibility of additional rate hikes in the near term.

Technical Analysis

In the analysis of the US Dollar Index (DXY), the current market sentiment leans towards a slight bearish bias. The 4-hour price of 102.203 hovers below both the 200-4H and 50-4H moving averages, indicating resistance levels. The 14-4H RSI stands at 43.33, suggesting a neutral sentiment. The market shows a modest upward movement from the previous 4-hour close of 101.975.

The main support area at 102.003 to 102.136 offers potential buying interest, while the main resistance area at 103.280 to 103.424 poses hurdles for further upward momentum. Traders should monitor price movements within these levels for potential shifts in market sentiment.