DXY Falls Under 103.00 Amid Varied Sentiment, Anticipates Fed Minutes, US NFP

The US Dollar Index (DXY), a measure of the US dollar’s strength against a group of other major currencies, has seen a significant drop, touching an intraday low of around 102.90. This downward shift continues the retreat from a three-week high observed the previous day and primes the market for a key week with the impending release of the Federal Open Market Committee (FOMC) monetary policy meeting minutes and the US jobs report.

The recent weakening of the DXY can primarily be attributed to less-than-stellar US inflation indicators and consumer spending data. These disappointing figures have cast a cloud of uncertainty over the previously bullish outlook held by the Fed. Despite this, the ambiguity surrounding US-China relations and current market volatility is offering some support to DXY prices.

Delving into the specifics, the US Personal Consumption Expenditure (PCE) Price Index for May, which is the Fed’s favoured inflation metric, reported a figure of 0.3% MoM and 4.6% YoY. These numbers fell short of market predictions, indicating the smallest annual increase in half a year and challenging the prevailing idea of sustained inflationary pressures.

Moreover, the PCE Price for Q1 2023 experienced a decrease to 4.1% QoQ, from the expected 4.2%. Alongside a -2.7% MoM decline in Pending Home Sales for May, these trends suggest a deceleration in consumer spending and a potential easing of inflation rates. This brings into question Fed Chair Jerome Powell’s advocacy for “two more rate hikes in 2023”.

Adding to the complexity is the recent confirmation of US Treasury Secretary Janet Yellen’s trip to China from July 06-09. While the news may initially seem favourable, it has provoked mixed responses among DXY traders. Concerns regarding human rights abuses against the Uyghur Muslim minority, China’s ban on sales of Micron Technology memory chips, and measures against foreign due diligence and consulting firms could potentially temper the initial enthusiasm.

Amidst these developments, S&P500 Futures are showing a rising trend, pointing towards a positive outlook for Wall Street, while US Treasury bond yields remain resilient.

Looking ahead, the US ISM Manufacturing PMI for June is expected to be a notable risk catalyst influencing intraday movements. However, the primary attention will undoubtedly be on the Fed Minutes and US jobs report, as traders look for clearer indications of the market’s direction.