US Dollar Index: DXY Remains Depressed Near 103,000 As Disappointing US Statistics Put Fed Conservatives To The Test

The US Dollar Index (DXY) remains in the red around 102.95, erasing Monday's late corrective rally, as markets seek new information on Tuesday morning. In doing so, the dollar's index against six major currencies validates the traders' lack of confidence in the Fed's hawkish wagers in light of recent weak US economic data. It is important to note that recent DXY movements have been constrained by the Independence Day holiday in the United States.

In addition to prolonging Friday's data disappointment, the US ISM Manufacturing PMI for June fell to its lowest level in three years and remained below the 50.0 level for the seventh consecutive month, coming in at 46.0 versus 47.2 anticipated and 46.8 previously. The ISM Manufacturing Employment Index fell to a three-month low of 48.1 in June, down from 51.4 in previous readings, while the New Orders Index rose to 45.6 from 42.6 in May and 44.0 market forecasts. In addition, the ISM Manufacturing Prices Pair dropped to its lowest level since April 2020, 41.8, from 44.2 in the previous month. S&P Global Manufacturing PMI for June confirmed a figure of 46.3, the lowest in five months, whereas Construction Spending for May increased 0.9% MoM, compared to 0.5% expected and 0.4% previous readings.

Last week, the US Gross Domestic Product (GDP) and Durable Goods Orders improved, but the Fed's preferred inflation gauge, the US Personal Consumption Expenditure (PCE) Price Index, failed to obtain support. In addition, personal expenditure declined, which challenged the Fed's hawkish bias and the DXY bulls.

According to interest rate futures, there is an 85% chance that the Fed will raise rates by 25 basis points (bps) in July. Futures markets had anticipated rate cuts at the Fed's September meeting as recently as May, and they now anticipate that the first rate cuts will occur in January. The market's ardent Fed wagers may be related to the hawkish remarks made by Federal Reserve officials at the European Central Bank (ECB) Forum in Sintra during the previous week.

Aside from this, news that US Treasury Secretary Yellen had a 'frank and productive' discussion with China's ambassador today bolsters traders' prospects for additional easing from the People's Bank of China (PBOC).

After a marginally positive performance on Wall Street, S&P500 Futures are inactive amid these plays. Nevertheless, after a positive start to the week, Treasury bond yields remain stagnant.