US Dollar extends losses amid US debt concerns

• The US Dollar Index sees the previous day’s relief rally pared back in full on Friday.  
• The House of Representatives has passed US President Trump’s spending bill. 
• The US Dollar Index ekes out further losses and is on its way to test a fresh two-week low

The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, dips further on Friday and erases the previous day’s recovery, trading near 99.40 at the time of writing. The fresh leg lower comes after the House of Representatives passed United States (US) President Donald Trump’s spending bill, now on its way to the Senate. The nonpartisan Congressional Budget Office revealed that this "big, beautiful bill" comes with a hefty price tag: $3.8 trillion in additional debt to the federal government's $36.2 trillion over the next decade, according to Reuters.

Markets, and indeed the bond market, have been very concerned about these numbers. The best example was the longer-term 30-year Bond, where yields rallied to 5.15% on Thursday from 4.64% at the start of May, a more than one-year high since the 5.18% seen at the end of December 2023. More concerns could devalue the US Dollar even further. 

Daily digest market movers: Fed takes over again

• President Trump threatens with a 50% tariff on all EU goods from June 1st and a 25% tariff on Iphones if they are not made in the US.
• At 12:35 GMT, St. Louis Fed President Alberto Musalem participates in a fireside chat with Kansas City Fed President Jeff Schmid at the Heartland Health Institute, Benthoville.
• At 14:00 GMT, April’s New Home Sales data will be released. 
• At 16:00 GMT, Federal Reserve Bank Governor Lisa Cook speaks on financial stability at the Seventh Annual Women in Macro Conference.
• Equities are in positive territory this Friday with marginal gains for European indices and some small gains for US futures ahead of the opening bell. 
• The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in June’s meeting at just 5.3%. Further ahead, the July 30 decision sees odds for rates being lower than current levels at 28.2%. Recent hawkish comments from Fed officials have reduced the chances of a rate cut in the short term.
• The US 10-year yields trade around 4.51%, cooling down from their peak performance earlier this week at 4.62%.  

US Dollar Index Technical Analysis: Has room to the downside

The US Dollar Index is back to square one, flirting with a fresh two-week low at the time of writing near 99.40. With the spending bill now having cleared that first hurdle, the risk of a substantial shock effect in the US debt could further materialise. Even another cut in its credit rating might be under consideration, denting the US image and the US Dollar even further. 

On the upside, the broken ascending trend line and the 100.22 level, which held the DXY back in September-October, are the first resistance zone. Further up, the 55-day Simple Moving Average (SMA) at 101.49 is the next level to watch out for, followed by 101.90, a pivotal level throughout December 2023 and as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024. In case Dollar bulls push the DXY even higher, the 103.18 pivotal level comes into play.

If the downward pressure continues, a nosedive move could materialize towards the year-to-date low of 97.91 and the pivotal level of 97.73. Further below, a relatively thin technical support comes in at 96.94 before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.

US Dollar Index: Daily Chart