**U.S. Dollar Strengthens as Treasury Yields Rise: In-Depth Analysis of EUR/USD, GBP/USD, USD/CAD, USD/JPY**
*Original analysis by Vladimir Zernov, FX Empire*
The U.S. dollar advanced against major currencies on Tuesday, supported by a surge in Treasury yields. As market participants revisited expectations around the Federal Reserve’s interest rate strategy, the dollar capitalized on strong economic data, particularly in the labor market. This development put downward pressure on major pairs like EUR/USD, GBP/USD, and USD/CAD, while boosting USD/JPY. This article delivers a comprehensive analysis of the current forex landscape, reviewing key technical levels and economic drivers influencing movement.
## Macro Drivers Behind the Dollar’s Strength
– **Rising Treasury Yields**: U.S. Treasury yields surged to multi-week highs, largely driven by stronger-than-expected economic indicators.
– The yield on the 10-year note reached around 4.35%, reflecting renewed investor sentiment that the Fed may delay rate cuts amid persistent inflation.
– Rising yields often support the dollar by attracting foreign capital into U.S. fixed-income assets.
– **Strong Labor Market Data**:
– Data from the U.S. JOLTS (Job Openings and Labor Turnover Survey) reflected resilience in employment, with job openings increasing unexpectedly.
– Investors interpreted strong labor data as a signal that the economy remains robust, reducing the urgency for the Fed to initiate rate cuts.
– **Shifting Federal Reserve Expectations**:
– Although markets priced in multiple rate cuts earlier this year, recent data has prompted a reevaluation.
– The Fed has emphasized a data-dependent approach, and as inflation remains sticky while employment indicators remain strong, fewer cuts are likely in the near term.
– CME’s FedWatch Tool showed a decrease in the probability of a September rate cut.
## EUR/USD: Bearish Momentum Powered by Dollar Gains
EUR/USD declined to session lows as the stronger U.S. dollar weighed on the euro. The currency pair faced pressure from both weakening European data and the broader flight to safety in dollar-denominated assets.
### Key Factors:
– **Weak European Data**:
– Recent figures suggest lackluster growth in the Euro Area’s manufacturing and services sectors.
– German inflation data has indicated a gradual cooling, diminishing the urgency for restrictive monetary policy by the European Central Bank (ECB).
– **Technical Analysis**:
– Immediate support for EUR/USD lies near the 1.0730 area.
– A breakout below this level could open the door for a move toward the critical 1.0670 region.
– Resistance stands at 1.0800. Bulls would need to reclaim this territory to regain short-term control.
### Technical Summary:
– Support Levels:
– 1.0730 (Immediate)
– 1.0670 (Next significant support)
– Resistance Levels:
– 1.0800 (Key barrier)
– 1.0880 (upside breakout confirmation)
## GBP/USD: Retreat Driven by Economic Divergence
The British pound also lost ground against the U.S. dollar due to diverging economic trajectories between the U.K. and U.S.
### Key Drivers:
– **Bank of England Policy Outlook**:
– The Bank of England has hinted it may be closer to rate cuts compared to the Fed.
– U.K. inflation has shown signs of easing, giving policymakers room to consider stimulus.
– **Macro Headwinds for GBP**:
– Concerns over stagnant wage growth and subdued retail activity continue to weigh on the pound.
– Investors have been increasingly rotating into the dollar on the back of its yield advantage.
– **Technical Landscape**:
– Key support is near 1.2500. A break below could reinforce bearish sentiment.
– Short-term resistance lies at 1.2600. Bulls have struggled to gain momentum past this
Explore this further here: USD/JPY trading.