US Dollar News: Fiscal Fears Weigh as Euro and Pound Hold Firm
The U.S. dollar begins August anticipating more pressure as investors respond negatively to increased speculation about Washington's ability to address increasing long-term Treasury financing costs. At nearly $4 billion each, the Treasury increased the number of buybacks for longer dated debt, although this had no effect on bond yields.
Instead, the wholesale purchase of Treasuries by the U.S. public has prompted market concerns regarding the solvency of the U.S. government and the value of its currency. Slightly under one percentage point, the dollar is expected to close the week at a lower level, while market expectations of a September Fed rate increase are approximately 33%. The minutes of the July FOMC meeting reflect ongoing concerns of many participants regarding the Fed's failure to achieve its inflation target.
The euro also has an easier monetary policy backdrop. The euro zone inflation rate was recorded at 2.9% for July. For July, activity in the business sector increased at its fastest pace in eight months. A Reuters survey demonstrates that 57 of 69 economists expect the euro zone inflation rate will be close enough to the ECB's target to motivate the ECB to raise its deposit rate to 2.50% by September.
The GBP is benefitting from lessening interest rate differentials. Inflation for the UK rose to 2.9% in July, slightly above the BoE's forecast, and second quarter GDP grew by 0.4%. However, the labor market is cooling. The unemployment rate is 4.9% and vacancies fell to 707,000 while private sector real wage growth was 2.8%. Markets are continuing to price a 25 bps hike by the BoE by year end.
U.S. fiscal policy uncertainty and the dollar for August 21 is the FX theme. The euro and the pound are supported by the risk of ECB and BoE tightening, respectively, while the dollar is affected by uncertainty.
The FX theme for August 21 suggests that U.S. fiscal policy and related dollar uncertainty are combining with risks of ECB and BoE tightening to support the euro and pound, respectively. The dollar is affected by uncertainty.
U.S. Dollar Index Technical Analysis: DXY Breaks $99.38 Support as Bears Target $98.41
The USD index trades at $98.73 on the daily chart after a break below the $99.38 support zone and the consolidation trendline. Bulls are also below the 50-day EMA at $100.05 and the 100-day EMA at $99.83. This confirms that the short-term structure is clearly bearish.
DXY's RSI is approaching the 30 level and is close to oversold territory. This would support a move to the mean, but the bearish momentum below the $99.38 breakout zone creates a weak market structure. Bulls have potential to test $98.41, $97.84, and $97.15. Should DXY trade above $99.38, $100.06, and $100.66 zones, resistance will form.