United States Dollar Index edges up to near 99.50, supported by higher bond yields
- The US Dollar edges higher due to surging US Treasury Yields amid higher oil prices.
- 10-year US Treasury Yields hit a fresh 19-month high at 4.78%.
- US ISM Manufacturing PMI data for August and the JOLTS Job Openings data for July are awaited.
The US Dollar (USD) trades slightly higher against its peers on Tuesday, as long-dated United States (US) Treasury Yields rally due to surging oil prices in the wake of renewed Middle East conflicts.
In early European trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% higher to near 99.50. 10-year US Treasury Yields post a fresh 19-month high at 4.78%. Yields on 10-year bonds are slightly below the multi-year high of 4.81%. Meanwhile, 30-year US Treasury Yields jump are up 0.5% to near 5.27%, the highest level seen in over a week.
US bond yields have capitalized on de-anchored inflation projections amid higher oil prices. The WTI Oil price is up almost 0.6% to near $86.00. The exchange of attacks between the US and Iran has prompted fears of prolonged energy supply disruption.
Earlier in the day, Iran’s Islamic Revolutionary Guard Corps (IRGC) said that it shot down a US MQ-9 drone over the Strait of Hormuz using air defense missiles, causing it to crash into Gulf waters. The military attacks between the US and Iran restarted after Central Command (CENTCOM) struck Iranian rocket launchers on Sunday that were preparing to send mines into the Strait of Hormuz.
On the domestic front, investors await the US ISM Manufacturing PMI data for August and the JOLTS Job Openings data for July, which will be published at 14:00 GMT.
This week, the major trigger for the US Dollar will be the US Nonfarm Payrolls (NFP) data for August, which will be released on Friday.
US Dollar Index Technical Analysis
In the daily chart, the Dollar Index Spot trades at 99.48, maintaining a mildly bearish near-term bias as it holds just beneath the 20-day exponential moving average (EMA) at 99.53. The index’s inability to reclaim this nearby EMA suggests upside attempts remain capped for now, while the Relative Strength Index (RSI) at 46.62 stays below the neutral 50 line, hinting at subdued bullish momentum rather than outright oversold conditions.
On the topside, immediate resistance is located at the 20-day EMA at 99.53, which is the first hurdle that bulls would need to clear to ease the current downside pressure and open the way for a more sustained recovery. With no clear structural supports derived from the present dataset below spot, traders may look to intraday price action around the 99.50 area as a tactical pivot, with sustained trading under the 20-day EMA likely to keep the Dollar Index biased to the downside in the short term.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.