US DOLLAR INDEX EXTENDS GAINS

US Dollar Index (DXY), extends the optimism, advances for the second session in a row and trades closer to monthly peaks located in the 92.80/85 band, always on the back of the resumption of the demand for the buck and higher US yields. Now, the index is gaining 0.15% at 92.69 and a breakout of 92.84 (monthly high Jul.7) would open the door to 93.00 (round level) and finally 93.43 (2021 high Mar.21). On the other hand, the next down barrier lines up at 91.51 (weekly low Jun.23) followed by 91.37 (200-day SMA) and finally 89.53 (monthly low May 25).

After market participants seem to have already digested both testimonies by Chairman Powell. Indeed, Chief Powell reiterated his message at the Senate on Thursday. He, however, suggested that high inflation might persist more than initially anticipated, which should prompt some re-assessment by the Federal Reserve. Also supporting the sentiment surrounding the dollar, Chicago Fed C.Evans said that tapering of the bond-purchase programme could kick in by year-end, while St. Louis Fed J.Bullard advocated for the removal of current emergency measures. In the bonds market, yields of the key US 10-year note gain a coupled of bps after bottoming out near 1.30% on Thursday.

The dollar was headed for its best weekly gain in about a month on Friday, supported by investors' drift toward safety as rising COVID-19 infections loomed over the pandemic recovery, while a hot inflation reading sharply lifted the New Zealand dollar. The kiwi was the biggest mover amongst majors in the Asia session, and was last up 0.6% at $0.7020, after consumer prices rose far faster than expected, bringing forward markets' rate hike expectations to August. The dollar's recent strength, though, has been so irresistible that even the startling prospect of New Zealand leading developed markets out of emergency-level rates in a matter of weeks hasn't broken the kiwi from narrow ranges. The kiwi is up just 0.3% for the week and is below its 200-day moving average. Tapering of bond purchases in Canada has also done little to lift the loonie, which has struggled with soft oil prices and is off about 1% on the week. The dollar was broadly steady elsewhere on Friday but heading for weekly gains, with a rise over the week so far of roughly 0.5% against the euro and sterling and 0.7% against the risk-sensitive Australian dollar. Ahead on Friday, traders are looking to U.S. retail sales data and consumer confidence for any reading on inflation and the strength of the recovery. BOND RALLY The mood across financial markets has been jittery for a couple of weeks as virus infections are surging. Treasuries have rallied for a third week in a row with no obvious catalyst but in tandem with worries that the new infections could dent recovery progress, that slowing Chinese growth puts the brakes on global growth and that U.S. inflation looks transitory, or at least under central bankers' control. The safe-haven yen has also been firm, with a loss of 0.1% on the dollar making it second only to the kiwi as the best-performing major against the strong dollar. The yen is headed for its best week in a month against the euro. It last bought 109.99 per dollar and 129.88 per euro . The euro stood at $1.1808, not far above the three-month low of $1.1772 it tested during the week. Sterling traded at $1.3835 in Asia, having handed back some of a bounce that came with strong jobs figures and hawkish comments on Thursday from Bank of England policymaker Michael Saunders. The Australian dollar drifted 0.2% higher on Friday to $0.7435 but was tracking for a weekly loss and fell to a five-month low on the kiwi as New Zealand's rates outlook shifted. The Thai baht, among the currencies most battered by the pandemic's resurgence, sat at a three-month low and tracked toward a fifth consecutive weekly loss as the tourism-dependent country posted record infections.

It is expected to be an interesting days in the US docket, where Retail Sales and the preliminary gauge of the Consumer Sentiment for the month of July will take centre stage seconded in relevance by the TIC Flows. The recovery in DXY flirts with monthly tops around 92.80 so far amidst the solid buying bias surrounding the dollar. The positive stance in the index, in the meantime, remains underpinned by the solid pace of the economic recovery, higher-than-expected inflation figures and rising rumours of rate hikes/QE tapering earlier than anticipated.