Dollar Dips Despite Rising Yields and Risk-Off Sentiment


The US Consumer Price Index (CPI) data surpassed expectations, sparking concerns about potential interest rate cuts as the USD strengthens.

On Wednesday, the US dollar took an unexpected turn, showing a decline in value. Meanwhile, the economic agenda for the day appears relatively quiet. The US Dollar Index dipped below the crucial threshold of 103.00 as risk aversion in equity markets waned.

The release of the US Consumer Price Index (CPI) data surprised observers, raising concerns about potential actions by the Federal Reserve amid a strengthening dollar. Although the dollar initially gained value following the CPI announcement, Tuesday's surge in US markets eroded half of these gains. If US trading remains uninterrupted, the DXY US Dollar Index is projected to close above 103.00 on Wednesday.

Looking ahead, the economic calendar lacks significant events, with little weight placed on forthcoming economic statistics. However, it's noteworthy that Tuesday's primaries saw sufficient votes for both incumbent US President Joe Biden and former President Donald Trump to secure their party nominations, setting the stage for a rematch on November 5.

In other market developments, European production estimates are declining further, signaling vulnerabilities in the commercial sector. Additionally, Austrian Central Bank Governor Robert Holzmann warned of the potential risk of an inflated euro if the European Central Bank (ECB) cuts interest rates ahead of the Federal Reserve. The US Treasury is set to conduct a 30-year bond auction, while US stocks, including the Dow Jones and S&P 500, are experiencing declines, driven by a 1% drop in the Nasdaq.

Technical analysis of the US Dollar Index suggests a potential for further decline despite recent gains. Traders remain cautious, particularly as the CPI data had minimal impact on the index. While certain moving averages present support levels, the inability to challenge the 55-day Simple Moving Average (SMA) suggests a likelihood of continued decline, potentially reaching 102.00 next, with further downside potential to 100.61 in 2023.

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U.S. Dollar Index

The calculation of the US Dollar Index typically takes into account factors such as trade volumes and foreign exchange reserves between the United States and other countries, primarily including major currencies such as the euro, yen, pound sterling, Canadian dollar, Swedish krona, and Swiss franc.

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