The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, recovered its intraday losses due to a rebound in US Treasury yields. During the Asian session on Thursday, the DXY traded around 104.10, with 2-year and 10-year US Treasury bond yields standing at 4.28% and 4.05%, respectively.
The US Dollar faced challenges amid dovish sentiment regarding the Federal Reserve’s (Fed) policy trajectory. The Fed decided to keep rates unchanged in the 5.25%-5.50% range during its July meeting on Wednesday.
Traders are now awaiting further direction from upcoming US economic data, including the ISM Manufacturing PMI and weekly Initial Jobless Claims, which are scheduled for release later on Thursday. On Wednesday, the US ADP Employment Change reported a rise of 122,000 in July, with annual pay increasing by 4.8% year-over-year. This followed a revised increase of 155,000 in June, falling short of the market expectation of 150,000.
During a post-meeting press conference, Federal Reserve Chair Jerome Powell mentioned that a rate cut in September is “on the table,” though the Federal Open Market Committee (FOMC) did not commit to any specific action. Powell emphasized that the central bank will closely monitor the labor market and remain vigilant for signs of a potential sharp downturn, according to Reuters.
However, the FOMC’s statement indicated that it does not foresee cutting rates until there is greater confidence that inflation is sustainably heading toward 2%. The committee requires more progress on inflation before considering a cut, unless a significant decline in the labor market begins to outweigh the slow progress on inflation.
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