Five consecutive rebounds! Where will the US dollar index go in this round of gains?

The US dollar has rebounded for the fifth consecutive trading day, and American traders are also preparing to end the holiday and enter a week full of economic data.

On Tuesday, the US dollar strengthened against most of the G10 currencies, with the Bloomberg Dollar Spot Index edging up by 0.1%. After the Labor Day holiday in the US, trading of US Treasuries resumed, with the yield on the policy-sensitive two-year US Treasury note rising slightly by 1 basis point to 3.93%.

Investors are awaiting US economic data, including the ISM Manufacturing PMI data released on Tuesday, the ISM Services PMI data to be released on Thursday, and the key non-farm payroll data to be released on Friday, to observe whether the market's pricing of a Fed rate cut is reasonable. The derivatives market predicts a one in four chance of a Fed rate cut of more than 25 basis points this month.

Frances Cheung, Head of FX and Rates Strategy at OCBC Bank in Singapore, stated, "We expect some short-term rebound in US Treasury yields, hence a stronger US dollar, as investors await labor market data. If the non-farm payroll data meets expectations, the market may have enough reason to reduce expectations of a Fed rate cut in the near term."

The Bloomberg Dollar Index hit a record of two consecutive monthly declines in August, when Fed Chair Powell stated that the "timing is right" for policy adjustments. However, investors still question whether US economic growth and inflation have slowed enough to prompt a 50 basis point rate cut at the Fed's meeting on September 17-18.

The first test for the market will be the ISM Manufacturing PMI data for August to be released later on Tuesday. Economists predict that this indicator may rebound for the first time since March.

A team led by Malayan Banking strategist Saktiandi Supaat wrote in a report, "If the US ISM Manufacturing data for August unexpectedly rises, prompting a more substantial repricing of rate cut bets in the market, the US dollar may further strengthen."

On Tuesday, the US dollar's strength weighed on most G10 currencies. The Australian dollar saw the largest decline due to falling iron ore futures and key input data for GDP coming in below economists' expectations. The Japanese yen performed well after Bank of Japan Governor Kuroda reiterated plans for further policy tightening.

Karl Steiner, Chief Analyst at Nordea, stated, "The Fed has indicated that its policy depends on data, making the market highly data-dependent as well." He mentioned, "This makes it interesting to observe when the market becomes overly nervous, as investors' positions on the yen are more neutral than they were in early August."