The US Dollar Index (DXY), which tracks the greenback against a basket of currencies, fell for the second straight day on Monday and continued to slide from its highest level since November 2022 reached last week.

The index maintained its negative bias through the first half of the European session and is currently hovering around the 108.70-108.65 area, down 0.25% for the day, although the fundamental backdrop warrants caution for bearish traders.

The US ISM Manufacturing PMI improved from 48.4 to 49.3 in December, showing signs of economic resilience and growth potential amid optimism over US President-elect Donald Trump's expansionary policies.

This, in turn, validated the Federal Reserve's (Fed) hawkish shift in December, which signaled that it would slow the pace of interest rate cuts in 2025, which kept the US Treasury bond yields higher. In fact, the 10-year US Treasury yield hit its highest since May 2 and supported the USD bulls.

Moreover, persistent geopolitical risks stemming from the prolonged Russia-Ukraine war and tensions in the Middle East, along with concerns about Trump's tariff plans, support prospects for some dip-buying around the safe-haven US dollar.

Hence, any subsequent USD dip might be seen as a buying opportunity and remain limited ahead of this week's important US macro data releases, including Friday's Nonfarm Payrolls (NFP). In the meantime, traders on Monday might take cues from the latest US Services PMI and Factory Orders data.

Source: FXStreet