- Tax plan uncertainty continues to weigh on the greenback.
- Falling US T-bond yields increase the pressure on the DXY.
- Wednesday's inflation and retail sales figures will be looked upon for fresh impetus.
Following Monday's choppy trading action, the US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, came under a heavy pressure on Tuesday as robust data from the euro area allowed investors to get rid of their long USD positions. After dropping to its lowest level since October 26 at 93.64, the DXY went into a consolidation phase and had been moving sideways in the last hour. As of writing, the index was at 93.70, losing 0.75% on the day.
The uncertainty surrounding the details of the final version of the highly-anticipated tax reform and the timing of its legalization seems to be the primary reason behind the index's and the T-bond yields' fall on Tuesday as investors ignored the robust macroeconomic data from the U.S. At the moment, the 10-year T-bond yield is losing nearly 1% on the day. The PPI growth on a monthly basis in October came in at 0.4%, surpassing the market estimate of 0.1% and ramping up the expectations for consumer inflation expectations.
In the meantime, speaking at an economic forum in Montgomery, Alabama, Atlanta Fed President Raphael Bostic said that the economic activity was reasonably solid in recent months and added that he was in favor of continuing to raise interest rates gradually over the next couple of years. Nonetheless, Bostic's comments failed to help the buck retrace its losses against its rivals.
On Wednesday, the US Bureau of Labor Statistics is going to releases the CPI data, which is expected to ease to 2% from 2.2% on a yearly basis in October. A higher-than-expected reading could help the greenback find demand as it would affirm another rate hike in December. However, politics are likely to remain the primary catalyst for the DXY.
"Fiscal policy, i.e., tax reform is overshadowing monetary policy at the moment. The House seems to be moving toward a vote later this week, even though there may still be some last-minute adjustments. President Trump is expected to address the House Republicans before the vote. Judging from the tweet storm, POTUS wants the bill to include a repeal of the individual mandate for the Affordable Care Act and wants to cut the top tax rate,” BBH analysts explained in a recent report.
Technical levels to consider
The index could encounter the first technical support at 93.35 (Oct. 26 low) ahead of 92.60 (Oct. 13 low) and 92 (psychological level). On the upside, resistances align at 94.45 (daily high), 95 (psychological level) and 95.60 (Jul. 14 high).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD regains traction, recovers above 1.0700
EUR/USD regained its traction and turned positive on the day above 1.0700 in the American session. The US Dollar struggles to preserve its strength after the data from the US showed that the economy grew at a softer pace than expected in Q1.
GBP/USD returns to 1.2500 area in volatile session
GBP/USD reversed its direction and recovered to 1.2500 after falling to the 1.2450 area earlier in the day. Although markets remain risk-averse, the US Dollar struggles to find demand following the disappointing GDP data.
Gold holds around $2,330 after dismal US data
Gold fell below $2,320 in the early American session as US yields shot higher after the data showed a significant increase in the US GDP price deflator in Q1. With safe-haven flows dominating the markets, however, XAU/USD reversed its direction and rose above $2,340.
XRP extends its decline, crypto experts comment on Ripple stablecoin and benefits for XRP Ledger
Ripple extends decline to $0.52 on Thursday, wipes out weekly gains. Crypto expert asks Ripple CTO how the stablecoin will benefit the XRP Ledger and native token XRP.
After the US close, it’s the Tokyo CPI
After the US close, it’s the Tokyo CPI, a reliable indicator of the national number and then the BoJ policy announcement. Tokyo CPI ex food and energy in Japan was a rise to 2.90% in March from 2.50%.