US Dollar News: Treasury Buybacks Weaken Dollar as ECB and BoE Stay Cautious
The U.S. dollar began August 20 with added pressure as bond market stress eased after the Treasury Department unexpectedly doubled longer-dated government bond buybacks, and the 30-year yield fell from its 19-year high of 5.337% to 5.211%. The Department Secretary Scott Bessent said buybacks of 10- to 30-year securities would rise from $2 billion to at least $4 billion per operation. The dollar also softened amid Fed minutes with continued concern for inflation and expectations for further tightening, though many of the policymakers had described recent price pressures as easing.
The softer U.S. dollar backdrop has driven the euro higher. For the European Central Bank, expectations are firmer. A Reuters survey showed the majority of respondents expected the ECB to lift its deposit rate to 2.50% next, after inflation in July hit 2.9%. ECB policymaker Olli Rehn said, however, at his Wednesday meeting that wage growth is still low, and there aren’t yet any clear signs of second-round inflation. This suggests policy makers will keep the more relaxed approach to honing policy in contrast to an aggressive rate hiking cycle.
Sterling’s fundamentals are more mixed. UK inflation rose to a four-month high of 2.9% in July, matching expectations but coming in a touch higher than the Bank of England’s estimate of 2.8%. Energy prices were the biggest cause after the capped prices increased by 13% and inflation for core goods and services remained at 2.6% and inflation for services fell to 3.4%. Private sector wage growth slowed to 2.8%. Additionally, there was a large decrease in job openings.
For central FX on August 20, we expect broad-based weakness in the U.S. dollar due to falling longer term yields and the ECB remaining on track for one more rate hike and the BoE’s challenges of higher inflation in energy and weakening employment.
U.S. Dollar Index Technical Analysis: DXY Breaks Rising Trendline as $98.41 Comes Into Focus
The U.S. Dollar Index (DXY) is trading at $98.89 on the daily chart after a significant breakout below a bullish rising trendline and the support at $99.38. Price is also trading below the 50-day EMA at $100.11 and the 100-day EMA at $99.85, showing bullish short-term structure. The latest breakdown has created a bearish view of the DXY for the foreseeable future. The current trend has been broken and a small doji candlestick has formed, attempting a small correction.
RSI is currently around 32 showing that DXY is getting close to being oversold and that downside momentum is stretching. For now, resistance is at $99.38 and $100.06 and $100.66. As for support, we are looking at $98.41 and $97.84.
