The Dollar Index (DXY) stabilized today, Monday, in anticipation of the release of inflation data from the United States, which is expected to provide further clarity this week on whether the Federal Reserve will continue its tight monetary policy to curb inflation pressures and stubbornly high inflation rates.
I believe the Dollar Index will remain below the 106.50 level during today’s trading, supporting a short-term recovery for dollar-denominated currency and assets.
The US dollar against the Japanese yen could test resistance at 152 and bounce back from these levels, leading to a short-term decline in the pair. Gold prices, as well as the euro and other currencies, may rise in a short-term corrective move until the release of US economic data and the market’s pricing in of that information.
After a strong rise in US Treasury bond yields, there has been a recent retreat, and I believe this pullback aims to retest the support level at 4.61% before a new upward movement occurs.
In my view, dollar investors may disregard any rise in US Treasury bond yields today due to market anticipation of economic inflation data and comments from Federal Reserve officials afterward to gather evidence on what the Fed might do regarding interest rates and its impact on the economy.
It is worth noting that the Federal Reserve left interest rates unchanged during its meeting last week but left open the possibility of raising interest rates again and did not rule it out from its monetary plans. Federal Reserve Chairman Jerome Powell indicated that the timing for starting interest rate cuts has not been determined.
This has left many investors with questions about how long interest rates will remain high and whether the US economy is likely to experience a recession or if the Federal Reserve expects a smooth decline in inflation, known as a soft landing.
Therefore, the markets hope to find signals and answers in the comments of Federal Reserve speakers this week, following the release of key economic inflation data.
So, I believe that the focus of most traders and investors in the markets will strongly shift to the US Consumer Price Index (CPI) numbers scheduled for release tomorrow, Tuesday, after the Federal Reserve policy meeting this month softened its stance, while Federal Reserve Chairman Jerome Powell hinted last week that the battle against stubborn inflation may not be over and that the bank is sticking to its 2% target.
This uncertainty leaves the Dollar Index in a state of ambiguity and fluctuation, which may continue until the market’s price in the new data this week.