Two Things Contributing to DXY's Rise| Influencer‘s Insight •Jasper Lo

So far in 2021, the market has seen a strong US dollar enduring while turned disappointed with the major non-US currencies, such as the euro, the Japanese yen, and the Swiss franc. The Chines yuan triumphed over its peers with sharp upsides, while the euro performed worst under political and economic pressures. As of writing time, the DXY has risen 1.32% year-to-date, and the offshore RMB has climbed 0.63% against the US dollar. The British pound and New Zealand dollar have held the US dollar to a temporary draw by their aggressive growth. The euro fell the most against the dollar, recording 2.15%, followed by the Swiss franc, down by 1.51%; the yen, decreasing by 1.45%; and the Australian dollar and the Canadian dollar, slightly shrinking 0.57% and 0.35%, respectively.

The overall situation indicates that the DXY has a great chance to rebound in February. On the contrary, the euro may continue dwindling amid worries arisen from political instability within European countries, what has occurred in Netherlands, Italy, and Russia successively. On the economic front, indicators of Europe are significantly worse than those of the US due to the rampant pandemic and community lockdowns. Besides, financial markets believe that the UK and the US will outpace Europe in economic recovery since the two countries have vaccinated significantly more people than the bloc. The rebounding DXY will put pressure on the euro continuously, attributed to their negative correlation.

The DXY started changing as early as the beginning of January when Democrats narrowly won the last two Georgia Senate seats. It was because financial markets changed their views on Bidens administration, which was no longer a scoffed lame-duck government but a powerful one with control over both the White House and the Congress. The US is expected to contain the pandemic effectively and get out of the downturn under the leadership of Biden and Yellen. Also, Also, markets believe that the substantial tax hikes on the rich will reduce the US budget deficit.

Notably, the US 10-Year Treasury yield bottomed out after retreating to 1.01%. It has broken the previous high of 1.14% and is on track for further gains. According to the FedWatch of Chicago Mercantile Exchange, there is a chance of rate hike in April, June, September, November, and December. Whats more, the chance in November and December once rose to 10%, putting a premium on the DXY. With that said, the US 10-Year Treasury yield and the higher chance for interest rate futures to see rate hikes are two factors boding well for the DXY, which could challenge 91.746 and 92.130 in future trading.