US Dollar Index rises toward 104.00 as yields improve, awaits ECB decision

NEW YORK (July 18) The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major currencies, rebounds due to improved US Treasury yields. The DXY holds gains around 103.80, with yields on 2-year and 10-year US Treasury bonds standing at 4.46% and 4.18%, respectively, during the European session on Thursday.

However, the US Dollar may limit its upside due to the high likelihood of a rate-cut decision by the Federal Reserve (Fed) in its September policy meeting. Federal Reserve officials have expressed increasing confidence that the pace of price increases is now more consistently aligning with policymakers' goals.

On Wednesday, Fed Governor Christopher Waller said that the US central bank is ‘getting closer’ to an interest rate cut. Meanwhile, Richmond Fed President Thomas Barkin stated that easing in inflation had begun to broaden and he would like to see it continue,” per Reuters.

According to CME Group’s FedWatch Tool, markets now indicate a 93.5% probability of a 25-basis point rate cut at the September Fed meeting, up from 69.7% a week earlier.

The New York Times reported on Wednesday that former President Donald Trump, in a meeting with House Republicans last month, expressed support for tax reductions, lower interest rates, and increased tariffs. These measures could potentially be inflationary for the economy and weaken the Greenback.

Traders anticipate the European Central Bank's (ECB) monetary policy meeting scheduled for later on Thursday. The ECB is expected to keep its main refinancing rate steady at 4.25% at July’s meeting. Additionally, traders will likely shift their attention to the US weekly Initial Jobless Claims and the Philly Fed Manufacturing Index, as well as a speech by the Fed’s Lorie Logan.

FXStreet