US Dollar (DXY) Index News: Firm as Euro Struggles, Yields Rise

Euro Struggles Amid Political Concerns

The euro traded nearly flat at $1.0701, showing a slight recovery after hitting a low of $1.06678 on Friday, the weakest since May 1. Last week, the euro recorded its largest weekly decline since April, dropping 0.88%. Investor worries about a potential budget crisis in the eurozone intensified as far-right and leftist parties gained traction ahead of France’s surprise parliamentary election, posing a challenge to President Emmanuel Macron’s centrist administration.

Despite the sell-off in French financial markets late last week, the European Central Bank (ECB) has no plans to discuss emergency purchases of French bonds, according to five sources. The political turmoil has negatively impacted the euro, which constitutes about 57% of the U.S. Dollar Index (DXY), indirectly bolstering the dollar.

Dollar Index and Treasury Yields

The dollar index, which measures the greenback against a basket of major currencies, held steady at 105.52, after peaking at 105.80 on Friday, the highest since May 2.

U.S. Treasury bond yields edged higher on Monday, influenced by comments from Minneapolis Federal Reserve President Neel Kashkari. He indicated that the Federal Reserve might delay rate cuts until December, stating it was a “reasonable prediction.” The 10-year Treasury yield rose by 6 basis points to 4.269%, while the 2-year yield increased by 5 basis points to 4.736%.

Fed’s Rate Outlook

Kashkari’s remarks come after the Fed’s updated projections last week, which suggested a single interest rate cut this year. He emphasized the need for more evidence to ensure inflation is on track to reach the Fed’s 2% target before making any decisions. Last week, the producer price index, a key inflation measure, was lower than expected for May, fueling hopes for a rate cut and lowering Treasury yields.

The Fed’s decision to maintain rates at 5.25% to 5.50% last week, coupled with the projection of just one rate cut in 2024, has set a cautious tone. This week’s U.S. economic data, including retail sales on Tuesday and flash PMIs on Friday, will be closely watched for any signs of economic strength or weakness.