Dollar Recovers, Fed Rate Hike Bets And Treasury Yields Rise As New York Manufacturing Activity Sharply Improves in April

The U.S. dollar and Treasury bond yields are rebounding aggressively on Monday (April 17), as investors fear that a lack of recessionary threats will force the Federal Reserve to keep monetary conditions tight for an extended period of time. This follows the latest better-than-expected readings in the New York Empire State Manufacturing survey and University of Michigan Consumer Sentiment index.

The U.S. dollar index (DXY), which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, climbed above 102 levels, up 0.6% on the day, and on track to post its second straight session of gains.

US Treasury yields spiked, with the two-year yield rising 4.20%, the highest since March 22 the 10-year yield surging to 3.6%, the highest since the end of March.

The iShares 20+ Treasury Bond ETF TLT is down 1.3% on Monday, on track to post its fourth straight session of declines. 

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Fed futures presently attribute a probability of 86% for a 25-basis-point increase in the federal funds rate in May, according to the latest CME Group FedWatch Tool. Despite the fact that this is assumed to be the Federal Reserve's final rate hike, speculators are now doubting whether policymakers would be ready to cut rates in the months to come, with bets on rate cuts for July's and September's FOMC meetings being reduced.

New York Empire State Manufacturing Activity Rebounds Dismissing Imminent Recessionary Fears: Business activity in New York State grew for the first time in five months, according to the April 2023 Empire State Manufacturing Survey. 

The overall business conditions indicator increased from -24.6 in March to 10.8 in April, markedly above market expectations of -18.

New orders and shipments increased, while delivery times remained stable and stockpiles increased. Despite the rise in activity, employment and hours worked fell for the third month in a row. Input price rises slowed, but selling prices climbed at the same rate as the previous month. Businesses continue to anticipate little change in conditions over the next six months.

The robust print of manufacturing activity in New York state in April, along with a rise in overall consumer confidence published by the University of Michigan, is reducing worries that the U.S. economy may shortly enter a recession.

DXY is Back Above 102 Again; Now Testing The 2023 Bearish Trendline: The DXY index has retraced more than the 23.6% of the 2023 high-to-low range and is presently testing the key bearish trendline of 2023.

If a breakout occurs in today’s session, the next key resistance level is 102.75 (38.2% Fibonacci retracement) and then 103.35 (50% Fibonacci and 50-day moving average).

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