Investing.com – The (DXY) index rose above 105 on Wednesday, a move that has sparked debate among market observers about whether this marks the start of a new uptrend or simply continued range trading during a period of low volatility. The recent pattern of weak auction results for two-year, five-year and seven-year US Treasury securities has contributed to a rise in long-term US bond yields of about 25 basis points over the past few weeks. This increase in yields has put downward pressure on equity markets.
The decline in equities appears to have allowed the dollar to align with firmer short-term interest rates in the US, particularly the two-year dollar swap rate, which has risen again to 4.85%. This reflects a reassessment of market expectations regarding potential monetary easing by the Federal Reserve.
Overnight developments hinted at the possibility of further support for US Treasuries. A successful auction of two-year Japanese Government Bonds (JGBs) helped limit the rise in JGB yields, which in turn was a contributing factor to the rise in Treasury yields. Additionally, the Federal Reserve’s recent Beige Book appears dovish, noting a somewhat more pessimistic economic outlook and a shift in labor market dynamics, including lower job turnover and stronger bargaining power for employers.
Investors today are awaiting the release of revised first-quarter US GDP data for 2024, which is expected to show a slight downward revision, along with the quarterly core personal consumption expenditures (PCE) price index, which is forecast to hold at annual level of 3.7% quarter on quarter. However, the upcoming release of key April PCE price data on Friday is forecast to be more important for the direction of the market. Additional economic indicators to be released include weekly jobless claims and April trade data.
Friday’s inflation data is expected to be the deciding factor in determining the dollar’s next significant trend.
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