US Dollar Index Reaches Near Two-Week High Amid Firm Yields

The US Dollar Index (DXY), a measure of the US dollar’s value against a basket of six major currencies, has been experiencing a steady uptick. It reached near two-week highs during the early Asian trading session on Tuesday, hovering around 101.45-40. This trend marks the extension of a five-day upward trajectory, with the market keenly awaiting key economic data and policy announcements.

The DXY’s surge to multi-day highs comes despite lackluster preliminary readings from the US S&P Global PMIs for July. However, these numbers were still relatively better than those from other major economies such as the UK, Eurozone, Australia, and Japan, giving the greenback an edge. The rise in US Treasury bond yields and anticipatory moves by the market ahead of the Federal Reserve’s monetary policy updates have further bolstered the US dollar.

July’s initial readings for the US S&P Global Manufacturing PMI showed an improvement to 49.0, up from the prior 46.3 and exceeding market forecasts of 46.4. However, the Services PMI dipped to 52.4, falling short of the expected 54.0 and previous 54.4 readings. Consequently, the Composite PMI edged down slightly to 52.0 from 53.2, just below market predictions of 53.1. Meanwhile, the June Chicago Fed National Activity Index declined to -0.32, a drop from the revised -0.28 and significantly below market forecasts of 0.03.

In contrast, manufacturing activity data from the Eurozone and Germany hit their lowest levels since 2020. PMIs from the UK, Australia, and Japan also indicated concerns over slowing economic activities, challenging the hawkish bias of major central banks and putting pressure on their respective currencies against the US dollar. Nonetheless, the risk-on mood allowed the Australian Dollar (AUD) to compete against the greenback.

As Wall Street closed in positive territory, US 10-year and two-year Treasury bond yields rose to two-week highs, strengthening around 3.88% and 4.92% respectively.

Last week, buoyant June US Retail Sales Group figures offset disappointing US housing and activity data, aiding the US dollar’s recovery from 15-month lows. However, previously released US employment and inflation indicators have been less encouraging, raising concerns about the Federal Reserve’s policy direction after July and prompting caution among greenback bulls.

Looking ahead, the focus is on the US CB Consumer Confidence for July, which is expected to come in at 112.1, up from the previous 109.70. This will provide some insight for DXY traders before the crucial Fed decision day.