US Dollar Index drops back to 106.50 as yields retreat after Fed Minutes

• US Dollar Index takes offers to refresh intraday low, pares Wednesday’s gains.
• Fed Minutes suggested a slowdown in the rate hike pace before long.
• Firmer US data, fears of recession keep buyers hopeful even as yields ease from weekly top.

US Dollar Index (DXY) renews intraday low around 106.50 as it consolidates weekly gains during Thursday’s Asian session. The greenback’s gauge rose notably on Monday and Wednesday amid fears of recession and firmer yields before the Fed Minutes triggered the latest pullback.

Minutes of the latest Federal Open Market Committee (FOMC) showed, per Reuters, that officials were ready to slow the pace of interest rate hikes in tandem with signals of a slowdown in inflation. The news also added, “In their July meeting minutes released on Wednesday, Fed officials said the pace of future rate hikes would depend on incoming economic data, as well as assessments of how the economy was adapting to the higher rates already approved.”

After the Fed Minutes’ release, the US 10-year Treasury yields retreated from the weekly top surrounding 2.90%, down one basis point (bp) to 2.89% by the press time.

In addition to the FOMC Minutes, the hopes of more stimulus from China also seemed to have exerted downside pressure on the US bond coupons, by way of a reduction in the haven demand. “China may issue 1.5 trillion yuan in additional debt as part of an investment push,” mentioned china securities news. However, doubts over China’s ability to overcome recession fears, especially after the covid woes and heat wave, seem to keep the risk aversion on the table.

Also contributing to the sour sentiment could be the latest comments from the US Trade Representative’s office stating that early this autumn, the US and Taiwan will begin formal negotiations on a trade initiative.

The bond coupons earlier rose after the US Retail Sales marked a mostly upbeat figure for July. US Retail Sales flashed 0.0% growth during July, versus 0.1% expected and a downwardly revised 0.8% prior. The Retail Sales Control Group figures, however, rose to 0.8% compared to 0.6% market consensus and 0.7% prior (revised from 0.8%).

On the same line were comments from Federal Reserve Governor Michelle Bowman who mentioned, “High inflation and strong employment will likely create some pressure on labor and employment.”

Looking forward, the weekly prints of the US Initial Jobless Claims and Philadelphia Fed Manufacturing Survey for August could entertain the DXY traders. Above all, recession fears and Fed concerns will be crucial to watch for fresh impulse.

Technical analysis

The double tops around 106.95 direct DXY bears toward retesting the 21-DMA support of 106.20.