The U.S. dollar, measured by the DXY, is up for a third straight day on Friday as hawkish comments from Fed officials and a cautious market mood have kept underpinning the greenback.
At the time of writing, the DXY trades at the 108.10 zone, posting a 0.6% daily advance after hitting its highest level in over a month at 108.21. The index is on track to post its biggest weekly gain since March 2020, climbing 2.28% since Monday’s opening.
The dollar has also been supported by higher U.S. Treasury yields. The 10-year note yield advanced sharply on Friday to touch a one-month high of 2.998%. The 30-year yield peaked at 3.236%. The yield curve remains partially inverted as the rate on the 2-year note stands at 3.257%.
Several Fed officials crossed the wires this week, fueling the Fed’s hawkish narrative. Mary Daly from San Francisco Fed favored either a 50 or 75 bps rate increase in the September meeting. James Bullard from the St. Louis Fed lent towards a 75 bps hike, adding that it’s too soon to say that inflation has peaked. Esther George from Kansas City Fed claimed that, while July’s CPI data was encouraging, it is too soon to declare victory and that the case for continuing rate hikes remains strong for the following meetings.
Investors’ tightening expectations are still adjusting to the comments. According to WIRP, swaps markets are pricing 56.5% odds of a 50 bps hike for the September meeting and 43.5% odds in favor of a 75 bps hike. Looking ahead, market participants are pricing a 3.75% terminal rate, while at the start of the week, it stood at 3.50%.
Back to the DXY, from a technical perspective, the index holds a bullish bias according to the weekly and daily indicators, while the price trades above its main moving averages and continues to move towards the cycle peak struck on July 14 at 109.30.
Interim resistances for the DXY are seen at the 108.50 and 108.70, and 109.00 levels. On the other hand, short-term support levels could be faced at the 107.50 zone, followed by the 107.00 psychological mark and the 20-day SMA, currently at 106.32.