DXY: US dollar index rises as 10-year yield crashes to 4-month low

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jul 7, 2021
  • The US dollar index rose on Wednesday morning ahead of FOMC minutes.
  • The minutes will provide more details on the bank’s decision three weeks ago.
  • The 10-year yield has declined to the lowest level in four months.

The US dollar index (DXY) tilted upwards even as Treasury yield declined to a four-month low. The index is trading at $92.52, which is a few points below this month’s high of $92.7.

US Treasury yields dip

US government bonds have been in a strong rally, pushing yields to the lowest level in more than four months. The 10-year yield, which moves inversely to its price, declined to a low of 1.363% on Wednesday morning. Similarly, the 30-year yield dropped to 1.98%. At its peak this year, the yield rose to 1.77% as investors priced in a more hawkish Federal Reserve.

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The recent bond rally started on Friday when the US published relatively mixed employment numbers. The economy added more than 850,000 jobs while wages rose by more than 3%. The unemployment rate rose to 5.9%. As such, while the labour market in the US has tightened, analysts believe that it will not lead to a policy shift by the Federal Reserve. 

The dollar index will react to the latest Federal Open Market Committee (FOMC) minutes that will come out later today. These minutes will provide more information on the deliberations that happened in the June meeting. In it, the members decided to leave interest rates unchanged at the range of 0.0% and 0.25%. They also committed to continue with the asset purchases at the current pace of $120 billion per month. 

The DXY is also rising after the relatively weak US non-manufacturing PMI data from the US. Data by the Institute of Supply Management (ISM) showed that the non-manufacturing PMI fell from more than 60 to 57. This is a sign that activity has started to normalise as the economy reopens. 

US dollar index analysis

Dollar index

The four-hour chart shows that the US dollar index has been in a strong upward trend in the past few days.  As a result, it has moved above the 25-day and 50-day exponential moving averages (EMA). It has also moved above the important resistance at $92.40, which was the highest level on June 18. It also seems to be forming the handle part of the cup and handle section. Therefore, the DXY will likely keep rising as bulls target the next key resistance at $93.

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