USD: Driver of DXY rally switches from yield spreads to risk sentiment – MUFG

Analysts at MUFG Bank, expect the US dollar to remain bid in near-term but concerns over global growth and a tighter Federal Reserve policy should ease later this year.  They mentioned the US dollar Index (DXY) rally is approaching key resistance levels near the YTD high at 93.43; they see that a sharp unwind of USD shorts has reinforced the upward momentum but should be less important going forward.

Key Quotes:

“The USD has continued its advance this month helping to lift the dollar index back to within touching distance of the year to date high of 93.437 from the end of March. After hitting a low on 25th May, the dollar index has strengthened by around 3.5% and is back trading at levels that were in place prior to last year’s US Presidential election between 92.000 and 94.000. The USD’s upward momentum has been reinforced by a sharp reduction in short positions over the past month amongst Asset Manager/Institutional and Leveraged funds that have fallen to their lowest levels in over year.”

“First stage of USD rally was driven by hawkish Fed policy update as short-term US yields moved higher.”

“Global growth concerns have taken over more recently as main driver for stronger USD. Upcoming FOMC meeting could see market focus shift back to Fed policy and plans for QE taper.”

“We expect the USD to stay bid over the summer as support from global growth and Fed policy tightening concerns remain in focus. However, we expect both concerns to ease later this year resulting in a reversal of USD strength.”

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.

Feed news

How do emotions affect trade?
Follow up our daily analysts guidance

Subscribe Today!    

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD remains pressured after US data misses estimates

EUR/USD is trading closer to 1.1750, paring its recovery from earlier in the day as the safe-haven dollar is bid. US Consumer Sentiment missed estimates with 72 points in September. The financial woes of China's Evergrande are weighing on sentiment.


GBP/USD trades under 1.38 amid on UK data, dollar strength

GBP/USD is on the back foot, trading under 1.38 after UK Retail Sales figures disappointed with -0.9% in August, worse than expected. Brexit uncertainty and dollar demand weighed on the pair earlier. 


XAU/USD surrenders intraday gains, drops closer to $1,750 level

Gold struggled to preserve its intraday gains and dropped to the lower end of the daily trading range during the early North American session. 

Gold News

Experts say Ripple will win SEC lawsuit, which might propel XRP to new all-time highs

The latest development in the ongoing SEC vs. Ripple lawsuit is that documents are classified as privileged and blocked for public viewing. Though institutional investors are yet to take big bets on the altcoin in 2021, retail investors are actively trading in XRP.

Read more

US Michigan Consumer Sentiment Preview: Markets will have to look hard for positive signs

Consumer outlook expected to rebound to 72.2 in September. August’s 70.2 was the lowest since December 2011. Inflation and Delta variant wearing on US optimism. Markets face negative dollar risk from fading consumer optimism.

Read more