US Dollar Outlook: DXY Index Recoils Higher Where to Next?

By Rich Dvorak10 days ago

US DOLLAR OUTLOOK: DXY INDEX EYES EMPLOYMENT DATA, INFLATION RISK

  • US Dollar strength sent the broader DXY Index recoiling nearly 0.4% higher on Tuesday
  • The Greenback caught a bid thanks to demand for safe-havens as risk appetite soured
  • Nearside resistance looms large over US Dollar bulls amid premature Fed taper talks

The broader US Dollar regained lost ground on Tuesday with the DXY Index rising about 0.4% to erase prior session losses. US Dollar strength was seen across the board of major currency pairs and most prominent across AUD/USD price action. Aside from general risk aversion and corresponding demand for safe-haven currencies like the USD, fears of not-so transient inflation seem to have intensified and heated up the conversation on when the Federal Reserve might start normalizing policy.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (24 DEC 2020 TO 04 MAY 2021)

Chart by @RichDvorakFX created using TradingView

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After mentioning that the Fed may have to raise rates to prevent the US economy from overheating early on Tuesday, Treasury Secretary Janet Yellen backtracked on her remarks later in the session. The former FOMC chair clarified that she does not believe inflation would be an issue and is not predicting nor recommending a rate increase, adding that interest rates are expected to remain low in the future. Not to mention, if Fed tapering and out-of-control inflation was perceived as a real threat by markets, it is hard imagining that the ten-year Treasury yield would still be hovering around 160-basis points.

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