The USD Index (DXY) witnessed a continued decline, breaking below the crucial 102.00 support level and reaching new lows for the past two months on turnaround Tuesday.
Investor Interest in Risk-Associated Assets Dampens USD Index
On Tuesday, the US dollar extends its downward spiral for the fourth consecutive session, with a significant break below the psychological barrier of 102.00. This decline takes place amidst a prevailing investor preference for riskier assets.
US Yields Correct Lower Ahead of Key Inflation Data
Adding to the dollar’s descent, US bond yields continue to adjust downwards from recent peaks. This correction occurs ahead of the imminent release of crucial US inflation figures on Wednesday, accompanied by widespread expectations of a 25 bps interest rate increase at the Federal Reserve’s meeting on July 26.
Minor US Economic Releases and Speech by St. Louis Fed Official
Today’s US economic calendar includes minor releases such as the NFIB Business Optimism Index and the IBD/TIPP Economic Optimism Index. Additionally, St. Louis Fed official James Bullard (a voting member until 2025 and known for his hawkish stance) will deliver a speech.
USD Outlook and Factors to Monitor
The USD Index continues to lose ground, extending the negative sentiment observed at the beginning of this week, now breaking below the crucial 102.00 support level.
Meanwhile, the likelihood of a 25 bps interest rate hike during the Federal Reserve’s upcoming July meeting remains high. This expectation is supported by the sustained strength of key US economic indicators, including employment and prices.
Federal Reserve Chief Powell’s recent comments during the June FOMC meeting further reinforce this view. He referred to the July meeting as a “live” event and indicated that most Committee members are prepared to resume the tightening campaign as early as next month.
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