US Dollar Index tumbles to 2-day lows near 91.50

The dollar sees its downside accelerated to the proximity of the 91.50 level when tracked by the US Dollar Index (DXY) at the end of the week.

US Dollar Index offered on PCE results

The index recedes to new 2-day lows after US May’s inflation figures measured by the PCE failed to lend extra support to the high inflation narrative. In fact, the Core PCE rose 0.5% MoM and 3.4% from a year earlier, pouring cold water over expectations of a higher reading.

Further data saw Personal Spending coming in flat on a monthly basis also in May and Personal Income contracting 2.0%.

In addition, the U-Mich index showed the June’s final Consumer Sentiment at 85.5 (from 82.9 preliminary), while the 5 Year Inflation Expectations at 2.8% (from 3% previous).

Yields of the US 10-year note remain anaemic around the 1.50% area in the meantime, with DXY looking to rebound from the mid-91.00s, where also sits the critical 200-day SMA.

What to look for around USD

The dollar remains under some mild downside pressure so far this week on the back of the improved mood in the risk-associated universe and flat US yields. The likeliness that the tapering talk could kick in before anyone had anticipated and the view of higher rates in 2023 (or before) fuelled the sharp bounce in the buck post-FOMC event to levels last seen in mid-April and introduced some uncertainty into the debate surrounding the extension of the “transient” inflation. The strong upside in DXY was also supported by higher yields in the shorter end of the curve, while yields of the key 10-year note keep orbiting around 1.50%. In the meantime, further progress on the reopening of the economy, the vaccine rollout and results from key fundamentals remain key for the dollar’s price action/sentiment in the short-term horizon.

Eminent issues on the back boiler: Biden’s plans to support infrastructure and families, worth nearly $6 trillion. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating?

US Dollar Index relevant levels

Now, the index is losing 0.27% at 91.56 and faces the next support at 91.51 (weekly low Jun.23) followed by 91.12 (100-day SMA) and finally 89.53 (monthly low May 25). On the other hand, a breakout of 92.40 (monthly high Jun.18) would open the door to 92.46 (23.6% Fibo level of the 2020-2021 drop) and finally 93.43 (2021 high Mar.21).