US Dollar Index: DXY surpasses 103.00 amid Fed forecasts and China Concerns pre-US data

The US Dollar Index (DXY) oscillates near a weekly high of around 103.40, as market participants anticipate key US data and risk factors that could sustain the bullish trend of the DXY during Thursday’s early Asian session.

The index maintains its momentum after a three-day winning streak, primarily driven by concerns surrounding a hawkish Federal Reserve (Fed) and fears induced by China while downplaying weaker US data. According to recent Federal Open Market Committee (FOMC) minutes, nearly all members agreed on halting the rate hike trajectory, with some policymakers leaning towards a July rate increase of approximately 0.25%. This suggests a hawkish tilt at the US central bank, fueling the US Dollar Index.

Meanwhile, China’s disappointing Caixin Services PMI for June, which fell to 53.9 from 57.1, adds to escalating US-China tensions. Beijing’s fresh warnings of additional trade restrictions dampen sentiment and boost the DXY. Recent announcements from China about sudden controls on exports of certain gallium and germanium products, effective from August 1, represent the latest response to US restrictions on AI chip shipments to Beijing.

Uncertainty surrounding China’s leading property developers, such as Shimao Group and government-backed Sino-Ocean Group, along with increased Chinese investment in Hong Kong and Macau wealth products, heightens economic concerns about China.

A Reuters poll of 80 FX strategists underscores a bullish outlook for the greenback, suggesting further DXY appreciation due to a resilient US economy. The survey also indicates a decrease in US Dollar short positions, citing data from the Commodity Futures Trading Commission, which bodes well for DXY bulls.

On the other hand, softer US data and caution ahead of key events are tempering the DXY’s bullish run. US Factory Orders reported a monthly growth of 0.3% for May, falling short of the expected 0.8%. However, new orders for manufactured durable goods in May rose for the third consecutive month. Earlier this week, the US ISM Manufacturing PMI and S&P Manufacturing PMI came in lower, putting pressure on the US Dollar Index.

In light of these factors, the market has nearly factored in a June Fed rate hike of 0.25%, driving the US Dollar Index higher. Wall Street benchmarks closed lower, while US Treasury bond yields soared.

Going forward, today’s US ISM Services PMI and ADP Employment Change for June, along with China-related news and recession fears, will be pivotal in determining the DXY’s direction.