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Market news

23 June 2022

US Dollar Index stays pressured around 104.00 as Fed’s Powell lacks aggression, US PMI eyed

  • US Dollar Index prints a four-day downtrend as buyers fail to praise Fed’s Powell.
  • Powell’s reluctance for aggressive rate hikes join recently softer oil prices, downbeat US data to favor DXY bears.
  • Testimony 2.0, preliminary readings for June’s US PMI will be eyed for fresh impulse.

US Dollar Index (DXY) fades bounce off weekly low as sellers flirt with 104.20 during Thursday’s Asian session. In doing so, the greenback’s gauge versus the six major currencies drops for the fourth consecutive day as traders await the first readings of the US S&P Global PMIs for June.

Federal Reserve (Fed) Chairman Jerome Powell’s justification for the recent rate hike, the biggest since 1994, managed to gain acceptance, at least during the first round of the Testimony on the bi-annual Monetary Policy Report. However, Powell’s rejection of the need for a heavy rate increase seemed to exert downside pressure on the greenback afterward.

Elsewhere, a reduction in the oil prices and recently downbeat US data could also be linked to the DXY’s latest weakness. That said, WTI crude oil prices dropped 0.85% to $103.50, down for the second consecutive day around the lowest levels in six weeks. The black gold’s latest weakness could be linked to the bearish weekly inventory data from the American Petroleum Institute (API). As per the API Weekly Crude Oil Stock for the period ended on Jun 17, stockpiles rose 5.607 million barrels versus an increase of 0.736 million barrels the previous week. Additionally, talks that US President Joe Biden will announce gas tax relief by the end of the week also weighed on the oil prices.

It should be noted that the latest US figures concerning housing and activities have been softer for May, which in turn eases the pressure on the Fed to tame inflation. Earlier in the day, Reuters said, “An early look at the state of the US job market in June from payroll provider UKG suggests some strengthening, even as the Federal Reserve lifts interest rates sharply and economists raise alarms over the likelihood of a recession.

Against this backdrop, Wall Street managed to pare the day-start losses but ended Wednesday with mild losses whereas the US 10-year Treasury yields marked the biggest daily fall in a week by ending the day at around 3.16%, down two basis points near 3.14% by the press time. That said, the S&P 500 Futures drop 0.50% at the latest.

Having witnessed the initial reaction to Fed Chair Powell’s testimony, DXY watchers await the US S&P Global PMIs for June and the weekly Jobless Claims data. Also important will be the second round of Fed Chair Jerome Powell’s Testimony. Should Fed’s Powell keep rejecting the monetary policy aggression, the US Dollar Index will have a further downside to track.

Technical analysis

A clear downside break of a fortnight-old ascending trend line directs DXY towards the previous week’s low near 103.40.

 

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