US Dollar Index rallies to one-and-half-week tops, beyond mid-92.00s

  • The USD strengthened across the board in reaction to the stellar July US monthly jobs data.
  • The Fed tapering speculations pushed the US bond yields higher and remained supportive.

The US Dollar Index (DXY), which measures the greenback’s performance against a basket of currencies, shot to one-and-half-week tops, beyond mid-92.00s in reaction to blockbuster NFP report.

The latest US monthly employment data showed that the economy added 940K new jobs in July, smashing expectations by a big margin. Adding to this, the previous month’s reading was also revised higher to show an additional of 938K jobs as against 850K reported earlier.

Further details revealed that the unemployment rate dropped from 5.9% in June to 5.4% during the reported month. There was also good news on the wage front, with average hourly earnings surging 4.0% YoY as against a rise to 3.8% expected and 3.7% previous (revised higher).

The report marked another step toward the Fed’s goal of substantial further progress in the labor market recovery, forcing investors to bring forward the likely timing of a policy tightening by the Fed. This was evident from a sharp spike in the US Treasury bond yields.

In fact, the yield on the benchmark 10-year US government bond prolonged this week’s strong rally triggered by Fed Vice Chair Richard Clarida’s hawkish comments and shot back closer to the 1.30% threshold. This was seen as another factor that underpinned the greenback.

Apart from this, worries about the fast-spreading Delta variant of the coronavirus further acted as a tailwind, though the risk-on impulse in the markets might cap gains for the safe-haven USD. Nevertheless, the index remains on track to end the week on a stronger note.

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