Market Data 
- US Dollar rally is likely to continue, fueled by resilient US economy and higher US Treasury yields.
- Durable Goods Orders from March were solid.
- Hawkish bets on the Fed might also benefit the US Dollar.
The US Dollar Index (DXY) is trading mildly higher at 105.90, buoyed by high US yields amidst hawkish bets on the Federal Reserve (Fed). The US economy continues to display robust growth, which has forced markets to delay their expectations on rate cuts.
In the US, the Fed maintains a steady hawkish stance despite soft preliminary PMIs in April. Additionally, persistent high US Treasury yields due to heavy supply injection could further boost the US Dollar. The week’s highlight will be March’s Personal Consumption Expenditures (PCE) on Friday and Gross Domestic Product (GDP) preliminary readings from Q1 on Thursday.
Daily digest market movers: DXY holds gains after mid-tier data
- Durable Goods Orders reported a 2.6% increase in March, albeit with the previous surge of 1.3% significantly revised to 0.7%.
- Orders Excluding Transport posted a rise to 0.2%, reversing a revised decrease from 0.3% to just 0.1%.
- Fed’s present stance on monetary policy implies that easing expectations remain low and steady. The market forecasts low chances for a rate cut in the upcoming June meeting, while July sees a diminished likelihood at 45%. By September, a rate cut still isn’t entirely anticipated with probabilities reduced to 90%.
- US Treasury bond yields showcase a mixed tendency. The two-year bond yield is seen at 4.93%, the 2-year yield at 4.66%, and the 10-year bond yield stands at 4.65%. Despite the mixed movement in yields on Wednesday, increasing US Treasury yields generally support Greenback strength.
DXY technical analysis: DXY bullish momentum continues flat, markets await direction
The indicators on the daily chart reflect a mixed scenario. The flat position of the Relative Strength Index (RSI) in positive territory indicates that the buying momentum is present but somewhat subdued as there seems no definitive direction. This suggests that bulls are exerting control but are struggling to gain further ground.
The decreasing green bars of the Moving Average Convergence Divergence (MACD) hint at slowing bullish momentum, making a potential transformative shift into bearish territory possible as the selling force starts to press forward.
However, the bigger picture is slightly more nuanced. Despite this sluggish bullish momentum in the short term, the DXY is currently trading above its 20,100 and 200-day Simple Moving Averages (SMAs). This not only points toward persistent buying pressure but also signals a more long-term bullish bias.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
