DXY: US dollar index pressured as bond yields soften

Written by: Crispus Nyaga
April 8, 2021
  • The US dollar index is being pressured by the falling bond yields.
  • It has dropped by more than 1% in the past few days.
  • The Fed members committed to easy money monetary policy.

The US dollar index (DXY) is little changed as the market reflects on the latest Fed minutes, the upcoming Jerome Powell speech, and the falling bond yields. It is trading at $92.40, which is slightly above this week’s low of $92.15.

DXY price chart

Fed commits to easy money

In its pandemic response, the Fed lowered interest rates to zero and launched its biggest quantitative easing plan ever. In its March meeting, the bank’s officials committed to continue the program even as the US economic situation improves. 

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

Inflation is approaching the target of 2.0% while the unemployment rate has dropped to 6.0%. The situation will continue improving because of the recent stimulus package, an upcoming infrastructure package, and the vaccination drive.

The changing situation has pushed bond yields to the highest level in more than a year. This week, the ten-year bond yield rose to 1.76% while the 30-year yield rose to 2.36%. The two have retreated after the Fed committed to maintain the current policies.

Later today, the dollar index will react to a speech by Jerome Powell. In it, he will likely address the disconnect in the financial market, where it has committed to an easy money policy at a time when stocks are hitting their all-time highs, the unemployment rate is falling, and inflation is moving towards the target at 2.0%. It will be his first statement after last week’s strong US employment numbers

The US dollar index price action today is mostly because of the Japanese yen and the Swedish krona. The greenback has dropped by more than 0.25% against the two currencies and wavered against the other constituent currencies.

US dollar index forecast

US dollar index
US dollar index chart

The four-hour chart shows that the dollar index has been on a strong downward trend after it reached a high of $93.45 last week. The DXY has dropped slightly below the 23.6% Fibonacci retracement level. The Cypher pattern shows that it is at the D section. It has also moved below the 25-day and 15-day exponential moving averages. Therefore, in the near term, the DXY may keep falling as bears target the 50% Fibonacci retracement level at $91.57.