Dollar Index Rallies as Higher T-Note Yields Offset Economic Weigh

The dollar index (DXY00) saw modest gains on Friday after recovering from a six-week low.

The recovery was driven by higher T-note yields, which strengthened the dollar's interest rate differentials.

Additionally, stronger-than-expected US economic news contributed to the dollar's rise. The Q2 employment cost index rose 0.9%, beating expectations of 0.8%. The Jul MNI Chicago PMI unexpectedly rose to 57.6, and the University of Michigan's US Jul consumer sentiment index was revised upward to a five-month high.

The markets are discounting a 67% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16.