Dollar Index Plunges to 105, Yields Fall as Fed Rate Cuts Loom

The US Dollar Index (DXY) has dropped to touch the 105 level, the first time since November last year. This decline is a result of a strong bearish rally in the dollar, which is expected to continue in the near term. The index has broken below its prior support levels of 106.35 and 106.61, which are now acting as short-term resistance. The next significant support level for DXY is around the 105 handle.

The decline in the dollar index is accompanied by a fall in US Treasury yields. The 10-year US yield has dropped to its lowest level year-to-date following the release of the latest economic data and markets are now fully pricing in two rate cuts by the Federal Reserve this year. This shift in yields has led to a completely different dynamic in the bond market, with yields trading below par.

Analysts are predicting that the dollar index could continue to fall, with some forecasting a decline to the 3.5% level by the end of the year. However, the direction of the dollar index will depend on a variety of factors, including the outcome of the ongoing trade negotiations between the US and China, as well as the stance of the Federal Reserve on interest rates.

The decline in the dollar index has also had an impact on other currencies. The British Pound and the Japanese Yen have both strengthened against the dollar, with the GBPJPY pair trading in a range of 185.00-188.00. The direction of this pair will depend on a variety of factors, including the strength of the dollar, the outcome of the Brexit negotiations, and the stance of the Bank of England on interest rates.

In conclusion, the decline in the US Dollar Index to the 105 level is a significant development in the global currency markets. The direction of the dollar index will depend on a variety of factors, including the outcome of the ongoing trade negotiations and the stance of the Federal Reserve on interest rates. The decline in the dollar index has also had an impact on other currencies, with the British Pound and the Japanese Yen both strengthening against the dollar.