DXY: US dollar index rally fades as US Treasury yields bounce back

Written by: Crispus Nyaga
March 2, 2021
  • The US dollar index rose today as investors focused on the US Treasury yields.
  • After dropping yesterday, the benchmark 10-year yield rose today.
  • The dollar has dropped against all currencies in the index.

The US dollar index (DXY) is rising for the sixth consecutive day as forex investors and analysts watch the performance in the bond market. It rose to an intraday high of $91.40, its highest level since February 5.

US Treasury yield in focus

The biggest focus among dollar traders has been the ongoing activity in the bond market. After rising to almost 1.60% last week, the yield on the 10-year dropped to 1.41% yesterday. Today, however, the yield has risen by 0.15% to the current 1.44%. The yield on the five-year has dropped to 0.703% while that of the 30-year has risen to 2.2%. 

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Analysts are watching the performance of the bond market for clues about the actions of the Federal Reserve. Higher yields imply that investors are optimistic about the overall economic recovery. As a result, it means that the bank will likely hike interest rates earlier than expected.

This action is mostly because of the ongoing stimulus actions. Last week, Democrats in the House of Representatives passed a $1.9 trillion stimulus package. This package is now being discussed in the Senate, which is expected to pass it next week. 

As a result, investors believe that such a deal will overheat the economy and force the Fed to act. Moreso, recent data shows that the American economy is recovery path. Already, more than 48 million Americans have already received a vaccine. And the trend will likely accelerate after Johnson & Johnson (NYSE: JNJ) single-dose vaccine.

Meanwhile, data released yesterday showed that the American manufacturing sector is improving. According to Markit, the country’s manufacturing PMI dropped to 58.6 in January. Another data by the Institute of Supply Management (ISM), the PMI increased from 58.7 to 60.8. 

The US dollar index has risen mostly because of the greenback’s performance against other currencies. It has risen by 0.35% against the Swiss franc, 0.18% against the Japanese yen, and 0.15% against the euro.

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US dollar index technical forecast

Dollar index
US dollar index chart

The dollar index rose to an intraday high of $91.40 today and then pulled back to the current $91.15. On the four-hour chart, the price is above the 25-period and 15-period exponential moving averages. It is also slightly above the important support at $91.05. The Relative Strength Index (RSI) is slightly below the overbought level of 70.