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The US Dollar Index (DXY) pulls back further from its two-year high, though the overall bullish sentiment persists.
- The DXY continues its decline for the second consecutive day, although downside movement appears to be limited.
- The Federal Reserve’s hawkish stance continues to support higher US bond yields, benefiting USD bulls.
- Geopolitical risks and trade war concerns may help cap losses for the safe-haven dollar.
The US Dollar Index (DXY), which measures the Greenback against a basket of currencies, slips for the second consecutive day on Monday, pulling back from last week’s high, the highest since November 2022. The index maintains a negative bias during the first half of the European session, currently trading around 108.70–108.65, down 0.25% on the day. However, the overall fundamental outlook suggests caution for bearish traders.
The US ISM Manufacturing PMI rose from 48.4 to 49.3 in December, signaling signs of economic resilience and growth potential, bolstered by optimism surrounding President-elect Donald Trump’s expansionary policies. This uptick supports the Federal Reserve’s (Fed) more hawkish stance in December, which indicated a slower pace of interest rate cuts in 2025, thereby contributing to the persistence of high US Treasury bond yields. Notably, the yield on the 10-year US government bond reached its highest level since May 2, benefiting the USD bulls.
Moreover, ongoing geopolitical risks from the Russia-Ukraine conflict and tensions in the Middle East, coupled with concerns about Trump’s proposed tariffs, bolster expectations for dip-buying in the safe-haven dollar. As a result, any declines in the USD are likely to present buying opportunities and remain limited ahead of this week’s key US macroeconomic releases, including Friday’s Nonfarm Payrolls (NFP) report. Meanwhile, traders on Monday may look to the final US Services PMI and Factory Orders data for further guidance.
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