The US dollar has bounced back following a dip on Tuesday. Despite a lack of major US economic data, the rise in US Treasury bond yields is thought to be helping boost the USD. Moreover, as a safe-haven asset, the USD benefits from the negative market mood. The US Dollar Index, which tracks the USD against a basket of six major currencies, has surpassed the 102.00 mark and retraced the previous day’s dip. Rising bond yields were triggered by stronger-than-expected UK CPI data, which raised concerns about sticky global inflation.
St. Louis Federal Reserve President James Bullard announced that interest rates may need to continue to rise without clear inflation progress. Housing starts in the US have decreased by 0.8% in March, while Building Permits fell 8.8% compared to expectations of +1.45%. In contrast, data from China showed that the world’s second-largest economy grew at an annualized rate of 4.5% in Q1 2023, surpassing analysts’ estimates. The US Census Bureau revealed that Retail Sales declined by 1% in March, while the University of Michigan’s Consumer Confidence Index rose from 62 to 63.5 in April’s flash estimate.
The Beige Book will be released by the Fed on Wednesday, with Existing Home Sales and Initial Jobless Claims data featured on Thursday, and S&P Global’s Manufacturing and Services PMI surveys on Friday. Richmond Fed President Thomas Barkin said that he wants more evidence of inflation settling back to target. Meanwhile, Federal Reserve Governor Christopher Waller stated that monetary policy must remain tight for a prolonged period longer than anticipated. According to the CME Group’s FedWatch Tool, the market is currently pricing in an over 80% probability of a 25 basis points (bps) Fed rate hike in May.
Technical analysis reveals that the US Dollar Index trades near the 20-day Simple Moving Average (SMA) of 102.20. If the DXY closes above this level, it could target 103.00 and 103.50. However, the Relative Strength Index (RSI) indicator on the daily chart stays close to 50, suggesting that sellers are holding off from committing to further USD weakness. On the downside, 101.50 is interim support, while a daily close below this area could lead to an extended slide towards 100.00.
Overall, the USD could continue to see increased demand as investors move away from risk-sensitive assets. The US Federal Reserve’s policy of raising interest rates to counter inflation may also be contributing to the USD’s strength.