US Dollar Forecast: Industrial Growth Boosts USD Strength, Bond Yield and GBP/USD Outlook

Market Overview

The US dollar held steady, bolstered by stronger-than-expected economic data. Building permits came in at 1.48M, slightly below forecast but still solid, while housing starts surged to 1.50M, surpassing expectations. Industrial production saw a notable rise of 0.9%, signaling growth in manufacturing activity.

The capacity utilization rate also improved to 77.6%, reflecting increased efficiency in production capacity. Meanwhile, TIC long-term purchases stood at $79.0B, indicating continued foreign interest in US assets.

With markets observing Martin Luther King Jr. Day, trading activity may remain subdued, but overall sentiment for the dollar stays positive.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is holding firm at $109.405, up 0.41%, and trading above its pivot point at $109.177, which aligns closely with the 50-day EMA. This suggests the dollar is maintaining a bullish bias in the short term.

A sustained move above $109.177 could open the door to further upside, with immediate resistance at $110.084, followed by a more significant hurdle at $110.690.

On the downside, a break below the pivot may expose support at $108.571, with deeper levels at $107.852. The 200-day EMA at $108.743 offers additional support, reinforcing the bullish trend as long as prices stay above it.

US 10-year Bond Yields

The US 10-year bond yield is currently trading at 4.623%, having recently rebounded from support at 4.583%, indicating some buying interest at lower levels. The yield remains below the 50 EMA (4.668%), suggesting near-term bearish pressure. A further decline could test the 200 EMA (4.529%), which may act as a critical support level.

Rising bond yields typically strengthen the US Dollar Index (DXY) as higher yields attract foreign investment into US assets. However, the recent pullback in yields may weigh on the dollar, reflecting expectations of potential monetary easing by the Federal Reserve or concerns about economic slowdown. A

sustained break below key levels could pressure the dollar, while a rebound in yields might bolster USD strength.

GBP Drops as Retail Sales Disappoint

The British pound faced downward pressure following disappointing retail sales data, which declined 0.3%, falling short of the 0.4% forecast and reversing the previous 0.1% gain. The CB Leading Index also contracted 0.3%, suggesting potential economic slowdown concerns.

Looking ahead, the Rightmove HPI, which posted a 1.7% rise after last month’s decline of -1.7%, may offer some support to sentiment. However, the upcoming WEF Annual Meetings could influence broader market sentiment and GBP volatility.

GBP/USD Technical Analysis

GBP/USD is currently trading at $1.22097, up 0.41%, but facing key resistance ahead. The immediate hurdle is the pivot point at $1.22608, which aligns closely with the 50-day EMA at $1.22566. If the pair manages to break above this level, it could pave the way for further gains toward the next resistance at $1.23823, with a potential extension to $1.24952.

On the flip side, failure to hold above the pivot could see GBP/USD retreating toward immediate support at $1.20987, with deeper downside potential to $1.19575. The broader trend remains uncertain, with the 200-day EMA at $1.24731 acting as a long-term resistance zone. A bearish stance below $1.22608, but a breakout could shift sentiment bullish.