© Reuters
By Peter Nurse
Investing.com – Updated at 15:13 GMT, 18:13 GMT
The US dollar index trimmed its losses and is heading higher after the release of US data that boosted the rise in Treasury yields, bringing the 10-year bond yields back to their highest levels since 2006, above 4%.
The data came as an indication of the strength of the US economy, according to the readings of the PMI for the non-manufacturing private sector from the Institute of Supply Management, which indicated that the US economy is in an expansion area, with a reading of 55.1 compared to an expected 54.5.
This indicates that the Fed has a lot of room to maneuver, with a larger rate hike to face inflation that is much stronger than expected.
Now, the most important support and resistance points appear on the hourly chart of the US dollar index as follows:
Support: 104,500, 104,571, 104,614
Resistance: 104.756, 104.799, 104.870
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The US dollar weakened in the early European trading sessions on Friday, on track for a weekly loss, amid uncertainty about the extent of the Federal Reserve’s future tightening path.
At 02:55 ET (07:55 GMT), the greenback, which tracks, was trading against a basket of six other currencies, down 0.2% at 104.782 after the 105.36 level seen at the start of the week.
The dollar index is on track to drop 0.4% this week, which will be the first week of losses since January.
Among the reasons that weighed on the dollar was the expectation that the Federal Reserve may stick to a moderate path of tightening policy following comments from Atlanta Fed President Rafael Bostick.
Bostick said he would prefer the Fed to stick to a “slow and steady” pace of tightening, endorsing a 25bp increase later this month, adding that the impact of higher interest rates may only be felt in the spring.
A series of strong economic data releases, including inflation proving to be holding at high levels, has traders pondering the prospects of a 50bps rate hike by the US central bank in two weeks’ time.
Elsewhere, the EUR/USD rose 0.2% to 1.0617, beating the near 1-month low of 1.0533 at the start of the week.
Inflation also came in higher than expected in the region this week, pointing to further interest rate hikes by European central banks, beyond the 50 basis points already indicated in mid-March.
European Central Bank President Christine Lagarde said on Thursday that the bank may need to continue raising interest rates beyond the levels that have been planned, as policymakers do their best to bring inflation back to the 2% target from the current position of over 8%.
Morgan Stanley’s forecast for the final rate set by the European Central Bank rose to 4% early Friday, after predicting 3.25% previously, citing troubled inflation figures in the region.
The central bank’s main interest rate is currently 3%.
GBP/USD rose 0.3% to 1.1980, holding below 1.20 as expectations grow that the Bank of England will halt its tightening cycle ahead of its major peers in light of the weakening UK economy.
USD/USD fell 0.2% to 136.47, in light of the support the yen gained after easing US yields, while Tokyo inflation saw some easing from a 40-year high in February, however data showed on Friday. , it still stands at relatively high levels.
NZD/USD rose 0.2% to 0.6227, AUD/USD rose 0.3% to 0.6750 and USD/CNY slipped 0.2% to 6.9018, after China’s service activity index grew faster than expected. in February, noting the recovery in the world’s second-largest economy.
