• US Dollar Index shows steady momentum, holds above 106.00.
  • Investors will eye bond auctions in the US as increased supply may fuel a hike in US yields.
  • Along with mid-tier reports, the week’s highlight will be March’s Personal Consumption Expenditures (PCE) data.

The US Dollar Index (DXY) is mildly edging higher on Monday, currently trading at 106.20. The Greenback’s strength is driven by robust domestic economic and persistent inflation pressures, which fuels a more hawkish stance by the Federal Reserve (Fed). Despite a quiet start to the week, the DXY continues its resilience, with signs pointing toward a possible retest of the November highs near 107.10.

The US economy demonstrates enduring strength with increased yields and robust growth, aiding the US Dollar's steadiness. Some Fed officials started to consider a rate hike as they see no progress on inflation. As for now, markets are delaying the start of the easing cycle. This week, the US will release Personal Consumption Expenditures (PCE) and Durable Goods from March, Gross Domestic Product (GDP) estimations from Q1, and S&P PMIs from April, all of which will likely impact expectations on the next Fed decision.

Daily digest market movers: DXY holds steady as markets await drivers

  • A hawkish turn from the Fed, coupled with additional US Treasury supply, could fuel additional upward movements in the US Treasury bond yields. This scenario can drive further Greenback gains following market adjustments to the Fed's actions.
  • According to market expectations, investors assign a 15% probability of a rate cut in the coming June meeting. This chance increases to 45% for a July rate cut, and even a September rate cut is only priced at 85% odds.
  • Upon examining the bond market, US Treasury bond yields are registering a slight decline. Specifically, the 2-year yield is seen at 4.97%, the 5-year yield at 4.64%, and the 10-year yield is slightly lower at 4.61%.

DXY technical analysis: DXY bulls struggle amid flat indicators

Despite the bullish momentum being halted, the DXY pair appears well-supported by its position above the 20,100 and 200-day Simple Moving Averages (SMAs), suggesting ongoing bullish sentiment.

The Relative Strength Index (RSI), being flat in positive territory, leaves room for possible bullish incursions. The lack of any definitive inclination may indicate an ongoing struggle between bulls and bears, yet retaining a latent potential for bullish behavior. Coinciding with the neutral RSI, the Moving Average Convergence Divergence (MACD) presenting flat green bars signals a sustained but flat buying momentum. Despite the occasional downturns, the prevalent green histogram highlights bulls’ resilience.

 

GDP FAQs

A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.

A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.

When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.

 

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