USD Slides Lower For Second Day, But Fed Expectations Limit Downside

The US Dollar (USD) has exhibited a mild depreciatory trend during the Asian trading session on Tuesday. However, it remains within striking distance of its February low. The USD Index (DXY), which measures the Greenback's strength against a basket of currencies, hovers above mid-103.00s as investors await key US macroeconomic data.

Factors Driving USD Movement

• Softening US Bond Yields: A decline in US Treasury bond yields has weighed on the USD for a second consecutive day, reducing the appeal of the currency for yield-seeking investors.

• Hawkish Fed Expectations: Despite the downward pressure from bond yields, the broader narrative of higher-for-longer interest rates from the Federal Reserve (Fed) continues to support the USD.

• Approaching Macroeconomic Data: Traders are anticipating the release of US macro data this week, including Durable Goods Orders, Consumer Confidence Index, and Richmond Manufacturing Index. These figures will provide insights into the Fed's future policy decisions.

Technical Analysis

• 200-Day SMA Resilience: The DXY recently displayed resilience below the critical 200-day Simple Moving Average (SMA), suggesting a potential pause in the USD's recent pullback.

• Follow-Through Selling Needed: A strong follow-through selling pressure is required to confirm a potential reversal in the USD's upward trend.

Economic Outlook and Fed Policy

The upcoming US economic data will offer fresh signals regarding the timing of the Fed's anticipated interest rate cuts. The Personal Consumption Expenditures (PCE) Price Index, scheduled for release on Thursday, will be closely watched as a key inflation indicator.

Robust economic data and sticky inflation could prolong the Fed's hawkish stance, bolstering the USD's value. Conversely, weaker-than-expected figures may increase speculation of an earlier shift to a more accommodative monetary policy, pressuring the USD.

Additional Highlights

• Market Sentiment: Investors are exercising caution ahead of the US economic data, which could determine the USD's next directional move.

• Technical Indicators: The DXY's daily moving averages remain mixed, indicating a lack of clear trend.

• Support Levels: 103.50, 103.00

• Resistance Levels: 104.00, 104.50

Table: USD Index Spot Data

Table: USD Index Trends

List: Economic Data Releases

• Durable Goods Orders
• Conference Board's Consumer Confidence Index
• Richmond Manufacturing Index
• US Q4 GDP
• US Personal Consumption Expenditures (PCE) Price Index