The U.S. Dollar index (DXY) added 0.8% since the beginning of the week reaching a 10-month high at 106.91 points amid mixed sentiment in the market.
Last week investors were scared with a possible U.S. government shutdown there was amplified by a hawkish rhetoric of Federal Reserve (Fed) officials. This send the U.S. Treasuries yields sky high, pushing the Greenback also up.
However, some of the Fed’s officials were trying to cool down the audience by sending dovish signals in the end of last week. Fed's Vice Chair for Supervision Michael Barr and Federal Reserve Bank of New York President John Williams said that the central bank may be done with rate rises, while the question is more how long interest rates would remain elevated to move inflation pressures back to the 2% target. The Greenback went into correction on the news losing around 1.0%. PCE Index also contributed to the weakening Dollar as it came out lower-than-expected.
Everything has changed over the weekend when the Congress approved temporary financing for government agencies for the next 45 days. The U.S. 10-year Treasuries yields rose to 4.70%, a new record since 2007. Stocks were relatively reluctant, while the American currency erased all it correction and hit 10-month high. There were nothing new in Fed’s comments on Monday that could push the Dollar up. Some believe that hedge funds were tuned to the government shutdown and supported the rally of the Dollar this week.
Anyway, the situation hasn’t changed dramatically. The correction is still vital for the U.S. Dollar. The American currency is hugely overbought. The latter upside movement added divergence to the Dollar that signals in favor of a swift correction.
Nonfarm Payrolls this week could be a crucial point for the Dollar as volatility in the market is seen going down. Investors do not believe in a further rally of the Greenback, considering capital outflows from the ETF WisdomTree Bloomberg U.S. Dollar Bullish Fund.
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