The greenback, in terms of the US Dollar Index (DXY), accelerates the upside to new monthly tops around 107.00 on Friday.
The index rebounds sharply and already flirt with the 107.00 zone following the solid prints from the US Nonfarm Payrolls for the month of July.
Indeed, the upside momentum in the buck picked up extra pace after the US economy added 528K jobs during last month vs. markets’ consensus for a 250K increase. In addition, the jobless rate ticked lower to 3.5% while Average Hourly Earnings also surprised to the upside rising 0.5% MoM and 5.2% over the last twelve months.
The sharp bounce in the index comes reinforced by the equally strong rebound in US yields across the curve. In fact, the short end revisits the multi-week highs past 3.25%, as speculation of a now faster normalization by the Fed has started to run high among investors.
Higher-than-expected Payrolls results for the month of July appear to have reignited the perception of a more aggressive Fed’s rate path in the next months, lending extra support to both the dollar and yields.
Also bolstering the constructive outlook for the buck emerges the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.
Key events in the US this week: Non-Farm Payrolls, Unemployment Rate, Consumer Credit Change (Friday).
Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.
Now, the index is gaining 0.93% at 106.73 and a break above 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the other hand, the next support emerges at 105.04 (monthly low August 2) seconded by 104.96 (55-day SMA) and finally 103.67 (weekly low June 27).