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US Dollar Index: DXY Reflects Apprehension Ahead Of US Inflation In The Mid-102.00s As Yields Fall
Following the end of a two-day winning sequence, the US Dollar Index floats. DXY is also affected by geopolitical concerns encircling China and bond market concerns. President Biden of the United States authorised a limited ban on investments in Chinese technology firms. The significance of the US CPI for July increases as a result of milder NFP and Fed policy concerns.
US Dollar Index (DXY) is stagnant near 102.45 during Thursday's Asian session, after suffering its first loss in three days. In doing so, the Dollar's index versus the six main currencies reflects the market's cautious disposition ahead of today's U.S. inflation data, as measured by the Consumer Price Index (CPI) for July.
After the latest disappointing Nonfarm Payrolls (NFP) for the month in question, the importance of today's US inflation figures increases. In addition, the recent decline in MBA Mortgage Applications for a third consecutive week poses a challenge to the DXY investors, particularly amidst rising rumours of a Federal Reserve (Fed) policy reversal. The CME Group FedWatch Tool reveals that the markets are pricing in an 86.0% probability that the Federal Reserve will pause rate hikes at its September meeting.
In addition to the Fed's concerns, the recently low yields on US Treasury bonds also signal US economic difficulties and weigh on the DXY. In spite of this, the yields on US 10-year Treasury bonds have declined for two consecutive days, signalling the first weekly loss in four weeks, at approximately 4.01% as of press time.
Nonetheless, looming economic concerns from China, Europe, and the United Kingdom, combined with the global rating agencies' crackdown on banks, weigh on sentiment and support the US Dollar Index. Fears of deflation in China and the market's uncertainty regarding the future actions of the main central banks coexist.
According to Reuters, US President Joe Biden signed the long-awaited measure late Wednesday that allows the US Treasury Department to prohibit or restrict certain US investments in Chinese entities.
Wall Street closed in the red and US Treasury bond yields were declining, while S&P500 Futures posted modest gains as of press time.
US CPI and Core CPI for July will be crucial to monitor in light of imminent dovish Fed concerns, which, if confirmed, could extend the DXY's most recent retreat from the key resistance line. However, market forecasts indicate that the headline CPI will increase to 3.3% YoY from 3.0% previously, while the Core CPI, or CPI excluding food and energy, may remain unchanged at 4.8%.
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