US Dollar Index News: DXY Climbs as US Economy Shows Resilience, Rate Cut Uncertainty

Key Points

• Dollar gains for second week, index up 0.9%
• US economic data reduces rate cut expectations
• Stable Treasury yields, strong job market data

US Dollar’s Bullish Momentum

The US dollar is poised for its second consecutive weekly gain, fueled by robust economic indicators and central bank rhetoric scaling back aggressive rate cut expectations. The dollar index reflects this uptrend with a notable 0.9% increase.

Economic Resilience and Interest Rate Expectations

Recent US activity data paints a picture of economic resilience, suggesting that market expectations for significant rate cuts in 2024 might be overly optimistic. This week, investors revised their forecasts, expecting 140 basis points in rate cuts from the Federal Reserve, down from 165 basis points. The probability of a rate cut by March has decreased to 54%, a notable drop from 77% a week earlier.

Treasury Yields and Jobs Data

Treasury yields remained stable, with the 10-year note at 4.136% and the 2-year yield around 4.355%. This steadiness comes amidst fresh job data, revealing the lowest weekly jobless claims since September 2022, underscoring the strength of the US job market. Additionally, retail sales for December surpassed expectations, further bolstering confidence in the economy.

Global Currency Movements

The euro and yen showed minimal changes against the dollar, with the euro at $1.0878 and the yen at 148.02. The euro has declined by 0.6% this week, while the yen has struggled, dropping approximately 5% year-to-date amid Japan’s tepid economic data and recent earthquake. The British pound also experienced a slight decrease, trading at $1.2685 following a significant slump in UK retail sales in December.

Short-term Forecast

Considering the current economic landscape and central bank perspectives, the short-term outlook for the US dollar index appears bullish. Strengthened by robust labor market data and tempered expectations for aggressive rate cuts, the dollar is likely to maintain its upward trajectory in the near term.

Technical Analysis

The US Dollar Index is trading nearly flat on Friday, but still up for the week. Standing in the way of another robust rally is the 200-day moving average, which is currently at 103.461.

Based on the price action the last three days, the level is our pivot. Taking it out on better-than-average volume should put the market in a position to take out the nearest resistance at 103.572.

A sustained move over 103.572 will indicate the buying is getting stronger. This could fuel a breakout to the upside with plenty of room to run before the next major resistance at 105.628.