US Dollar Finds Momentum After Retail Sales Data

The US Dollar Index (DXY), which peaked last week at 106.10, surged 0.16% to currently trade a little above at 106.182 at the time of writing. The Fed’s hawkish language is still supported by strong economic data, and rising US Treasury yields help the greenback. The US Dollar tends to benefit from a cautious market sentiment that is influenced by tensions between Israel and Iran.

The US economy shows robust performance with Q1 growth indicating resilience and rising consumer spending backed by sturdy labour demand. The Fed’s stance tends toward hawkishness, adjusting its easing expectations and starting to signal a delay in rate cuts, buoyed by continuous robust growth and persistent inflation.

Retail sales data for March increased by 0.7% year over year, which was more than twice the predicted 0.3% annual growth rate. A June cut was no longer a likely option as it had been the week before, at 25%. Simultaneously, the likelihood of a July cut dropped below 60%, a significant departure from its prior 100% certainty. With only a 75% chance of a second cut in December, the market now projects the first cut to occur in September.

The yields on US Treasury bonds are still high, standing at 4.94% for 2-year bonds, 4.65% for 5-year bonds, and 4.63% for 10-year bonds. Relative Strength Index (RSI)-based technical indicators on the daily chart show overbought circumstances, suggesting that buyers have been in control recently and pushing up the value of the US Dollar Index, DXY.