US Dollar Index sees a downside below 112.50 as risk-on soars, US GDP in focus

• The DXY will display sheer weakness after surrendering the crucial support of 112.50.
• A significant drop in 10-year US Treasury yields improved investors’ risk appetite.
• In today’s session, the US GDP will be of utmost importance.

The US dollar index (DXY) is displaying a pullback move in the Tokyo session after dropping to near 112.57. Investors dumped the DXY on Wednesday after the market sentiment turned positive. Investors shrugged off the uncertainty of accelerating interest rates admitting that taming inflationary pressure is necessary. The DXY is expected to display more weakness as the pullback move will soon find sellers and the resumption of a downside journey will drag the asset to near 112.00.

10-year US Treasury yields plunge

After hitting a high of 4% for the first time since 2010, 10-year benchmark US Treasury yields have fallen dramatically as investors are expecting that the Federal Reserve (Fed) will slow down the pace of hiking interest rates sooner. A significant drop in yields has improved investors’ risk appetite.

Atlanta Fed President Raphael Bostic started to cross wires on Wednesday stating that the baseline scenario right now includes a 75 basis points (bps) rate hike in November followed by a 50 bps increase in December, as reported by Reuters. Should that materialize, the pace of hiking interest rates will slow down vigorously as the deviation between the desired terminal rate at 4.6% and Fed policymaker projections will trim significantly.

Spotlight shifts to US GDP

On Thursday, the investing community will keep its eye on the US Gross Domestic Product (GDP) data. As per the consensus, the annualized US economic activities have displayed a de-growth consecutively by 0.6% for the second quarter. A lower-than-projected GDP data will weaken the DXY further.