The US dollar index (DXY) continued its bullish trend as the bond sell-off eased slightly. The index is trading at $100.77, which is the highest it has been since 2020. It has jumped by over 12% from its lowest level in 2021.
Why has the DXY jumped?
The US dollar index has been in a strong upward trend as most of its constituent currencies tumble. For example, the Japanese yen has crashed to a multi-decade low of 128. It has fallen by over 68% from 2012.
The euro, which is the biggest constituent of the dollar index, has dropped to the lowest level since July 2020. Similarly, the Swiss franc has moved to the lowest point since April 2021. Other currencies like the Canadian dollar and Australian dollar have also continued falling.
The US dollar index has been in a strong bullish trend as US bond yields jump. The yield of the 10-year government bond has risen to 2.86% while the 30-year and 2-year bond yields have risen to 2.96% and 2.45%, respectively.
The American bond yields have risen as investors expect that the Federal Reserve will continue tightening in the coming month. The base case is that the Fed will deliver a 0.50% rate hike in May and then raise rates in the remaining five meetings of the year.
The Fed is trying to correct its mistake after it spent most of 2021 signaling that the rising inflation was transitory. With prices surging, it hopes that an aggressive policy will help to slow down prices. At the same time, the bank is hiking rates so that it will have tools to act if the economy goes through a recession.
Another reason why the dollar index has risen is that the Bank of Japan and the European Central Bank (ECB) have taken a more cautious tone.
US dollar index forecast
The US dollar index has been in a bullish trend in the past few months. On the daily chart, we see that the index has even formed an ascending channel that is shown in yellow. It is currently trading close to the upper side of this channel. The pair has also risen above the 50-day and 100-day moving averages.
Therefore, the DXY index will likely keep rising as bulls target the key resistance level at $101. A drop below the support at $99.41 will invalidate this view.
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Source: https://invezz.com/news/2022/04/19/us-dollar-index-forecast-heres-why-the-dxy-has-surged/