DXY: Is the U.S. Dollar Index Losing Steam?
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DXY: Is the U.S. Dollar Index Losing Steam?

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The DXY is flashing signs of weakness while risk appetite rises in the broader markets. Still, pared-back bets of rapid rate cuts could continue to lend strength to the U.S. Dollar until June.

The U.S. Dollar Index (DXY) has ticked lower by nearly 0.3% over the past five sessions, dropping back to its December 2023 levels. The moderation comes amid the U.S. Fed’s continuously cautious stance around the possibility of a rate cut and rising investor appetite for risk. Fed’s Christopher Waller has urged caution following the jump in consumer prices last month. The wait-and-watch approach is a result of the central bank’s fear of resorting to rate cuts sooner than necessary.

In response, traders have largely adjusted their rate trajectory compass from a rate cut in March to possible actions in July. Data points about jobs, wages, and compensation are more likely to hold sway over the Fed’s decisions over the coming months. Goldman Sachs, too, has scaled back its expectations to four rate cuts this year from the earlier five.

Elsewhere, China’s rapid moves to prop up its markets could lend strength to the Yuan. Still, an uptick in consumer demand could take some time to become visible. The Yen remains weak while global investors start waking up to the opportunities in Japanese equities. While Japan has seen two consecutive quarters of GDP contraction, the country’s Nikkei 225 Index has reached muti-decade highs.

With persistent concerns around inflation, the U.S. Dollar could continue to display strength. While the short-term thesis for the greenback remains Bullish, any gains could remain muted.

Source: TradingView

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