US Dollar Loses Resilience Amid Softening Data

Recent US economic data has weakened the case for the US Dollar's resilience, according to MUFG analysts Derek Halpenny and Lee Hardman. Despite the US Dollar Index (DXY) holding above its 200-day moving average near 99.200, softer retail sales, Nonfarm Payrolls (NFP), and Consumer Price Index (CPI) numbers have undermined support for the currency.

The steepening of the US yield curve driven by lower short-term Treasury yields has created an unfavorable backdrop for the dollar's performance. Market participants are scaling back Federal Reserve (Fed) rate hike expectations, with pricing in around 57bps of Fed hikes by April next year, including a hike in September, fully priced on July 24th.

The analysts expect the Dollar to weaken modestly heading into next year. The dollar index has not yet tested support from its 200-day moving average at around 99.200, which remains an important level of resistance.