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US Dollar Index: DXY Nurses Its Wounds Near 102.00, a Five-Week Low, As US Data Weighs On Fed Concerns
The US Dollar Index fluctuates at a monthly low, having dropped the most since early March. Unimpressive growth in US Retail Sales, conflicting activity data, and declining Jobless Claims will reduce Fed hawkishness. Additionally, stronger sentiment and ECB actions weigh on US Treasury yields and the DXY. Indicators of US consumer sentiment and inflation are analysed for further guidance as hawkish Fed wagers subside.
In the early hours of Friday's Asian session, US Dollar Index (DXY) bears take a respite at the lowest levels in over a month, flirting with the 102.00 round number. In doing so, the dollar's index versus six major currencies validates the market's diminishing hawkish concerns regarding the Federal Reserve's rate hike in July, as well as the risk-on sentiment preceding mid-tier US data.
According to the most recent data from the CME's FedWatch Tool, market participants are placing nearly 67% of their wagers on a 25 basis point (bps) rate hike in July. The same holds true for the traders' dearth of conviction in the Federal Reserve's (Fed) nearly clear signals for a hawkish move in July in the face of predominantly negative US data.
The US Retail Sales growth for May was 0.3%, compared to -0.1% expected and 0.4% prior, while the Core readings, Retail Sales excluding autos, matched 0.1% market expectations for the month, compared to 0.4% prior. In addition, the NY Fed Empire State Manufacturing Index increases to 6.6 in June, compared to -15.1 expected and -31.8 previously, while the Philadelphia Fed Manufacturing Index decreases to -13.7 for the same month, compared to -10.4 previously and -14 market expectations. In addition, US Industrial Production for May decreases to -0.2% from 0.1% expected and 0.5% previously, and Initial Jobless Claims for the week ending June 9 are revised upwards to 262K from 249K expected.
Notably, the European Central Bank's (ECB) victory over the Federal Reserve, signalled by the announcement of 25 basis point (bps) interest rate increases and the implication of more to come, also weighed on the US Dollar and the DXY. In addition, the PBoC reduced its one-year interest rate by 10 basis points (bps) for the first time in ten months, boosting market sentiment and exerting downward pressure on the US Dollar Index.
US Dollar Index formerly applauded the Fed's hawkish pause, but the aforementioned catalysts propelled the risk-on mood and submerged US Treasury bond yields, bringing back the DXY bears. Wall Street benchmarks rose by more than 1% each, while 10-year US Treasury bond yields fell to 3.72 percent.
In the near future, the preliminary readings of the Michigan Consumer Sentiment Index (CSI) for June and five-year inflation expectations will be scrutinised as Fed conservatives find less support. In addition, the Bank of Japan (BoJ) Monetary Policy Meeting and Fed discussions will be essential for establishing direction.
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