Dollar Bulls in Control
The recent US Dollar Index (DXY) continues its rebound momentum, securing two consecutive daily gains and staying above the 50-day moving average, indicating a clear technical correction. During trading, it briefly reached 98.673, coming within a step of the strong resistance area of 99.177-99.320. Market participants generally believe that the short-term trend of the dollar is now dominated by bulls, with current attention focused on the upcoming speech by Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium.
Investors are hoping Powell will provide clearer signals about interest rate policies for September and beyond. If his speech leans towards maintaining high interest rates or emphasizes inflation risks, the dollar index may further challenge the 99 level; conversely, if a dovish tone is conveyed, it could introduce downward pressure.
Rising US Treasury Yields Highlight Tension
The dollar's rise is accompanied by an increase in US Treasury yields. The 10-year yield surpassed 4.33%, while the 2-year yield approached 3.80%, reflecting the bond market's reassessment of inflation and policy prospects. The recently released FOMC meeting minutes showed that many officials are concerned about inflation's resilience and labor market uncertainties, hence reluctant to ease policies prematurely.
Notably, this marks the first instance since 1993 where a "dual dissent" vote occurred within the Federal Reserve—Waller and Bowman both opposed the decision to keep rates unchanged. This division highlights the internal opposition within the Fed and complicates market expectations for future policy directions.
Diverging Data Increases Policy Complexity
The latest economic data from the US is mixed. On one hand, initial jobless claims recorded the largest increase in three months, hinting at potential cooling in the job market; on the other hand, manufacturing orders hit an 18-month high, indicating resilience in parts of the real economy.
These divergent signals put the market in a dilemma: weakening employment supports reasons for rate cuts, while industrial recovery bolsters the dollar bulls. Coupled with the unstable pace of inflation reduction, they present a greater challenge for the Fed's policy choices.
Technical Test at a Crucial Juncture
From a daily chart perspective, the dollar index has regained the previous resistance level of 98.317, which now acts as a recent support. If it can effectively break through 98.950 later, it is likely to target the key range of 99.177-99.320. Should this zone be breached, the dollar may climb further to 99.838.
However, if Powell's speech strikes a dovish tone, steering the market towards expectations of rapid rate cuts, the dollar index might fall back to the support range of 98.317-97.859, potentially reaching the critical low of 97.626.
Market Outlook and Risk Warning
The prevailing market sentiment is that the Fed’s concerns about inflation still outweigh those regarding employment, keeping the dollar resilient. The CME "FedWatch Tool" shows a more than seventy-percent probability of a rate cut in September, but if Powell directly responds to the market's rate cut expectations, the dollar could face significant volatility.
In summary, the dollar index is at a pivotal threshold, with its future trajectory heavily relying on Powell's stance at the Jackson Hole Symposium. Investors need to remain flexible in the current environment, wary of short-term volatility risks prompted by his speech.
Amid divided market expectations, complex economic data, and escalating political pressures, the directional choice for the dollar index may unfold in the coming days.
