The US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, matched yesterday's high at 97.33 in the NA session and started to consolidate its daily gains. As of writing, the index is at 97.27, up 0.4% on the day.
Although the index struggled to rise above the 97 handle amid a lack of fundamental drivers before the American traders hit their desks, it was able to make a decisive leap above that level as the rising T-bond yields boosted the demand for the greenback. While the 10-year T-bond yield settled with a gain of 1.3%, the 2-year reference rose 2.2% on Tuesday.
The main catalyst behind today's upsurge witnessed in the bond yields seems to be the improved market sentiment, which made the safe haven Treasury bond less desirable, pushing their yields on lower demand. While Tuesday's economic data from the U.S. were mixed, the markets reacted positively to Trump's budget plan, which met the general expectations of the markets by revealing majors hikes in infrastructure and military spending.
- US: Business activity growth rebounds in May, led by service sector - Markit
- US: Manufacturers were somewhat less upbeat in May - Richmond Fed
The next big event for the greenback will be the meeting minutes from the last FOMC minutes, scheduled to be released tomorrow in the U.S. session. Although a rate hike in June seems to be unavoidable, investors look for further clues regarding the timing of the next rate hike.
Technical outlook
97.35 (daily high) could be seen as the immediate resistance for the index ahead of 98 (May 18 high/psychological level) and 98.75 (May 16 high). To the downside, supports align at 97 (psychological level), 96.70 (daily low) and 95.90 (Nov. 11 low).
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