- Greenback extends its rebound to near 106.70.
- Fed’s hawkish stance, risk-off sentiment support Greenback demand.
- Fed officials emphasize caution in rate cuts due to economic data, inflation risks.
The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, has traded with solid gains, rising to 106.70. The DXY’s upward trajectory is driven by factors such as recent strong economic data, rising yields, and a less dovish stance from the Federal Reserve (Fed).
Factors driving its strength include geopolitical tensions, cautious Fed rhetoric on interest rates, and solid US economic data. The uptrend remains intact, supported by the economy’s resilience and limited expectations of aggressive Fed easing. That being said, after the index reached yearly highs around 107.00, a pullback or a period of consolidation is possible.
Daily digest market movers: US Dollar advances as markets adjust bets on Fed cuts
- The DXY’s rise is driven by favorable data, rising yields, and the market’s cooling dovish Fed bets.
- Last week, Powell downplayed the need for aggressive easing, emphasizing the economy’s strength. He suggested slowing the pace of rate cuts to increase chances of achieving the right balance
- Other Fed officials align with Powell’s cautious approach, highlighting the need to consider both inflation and employment.
- Market odds of a December rate cut have fallen toward 58%, according to the CME FedWatch Tool, indicating a shift in expectations.
- For the rest of the week, markets will look upon weekly Initial Jobless Claims data, as well as S&P PMIs figures on Friday.
DXY technical outlook: Bulls resume momentum near overbought terrain
The US Dollar Index continues its bullish momentum on Wednesday, supported by positive technical indicators. The Relative Strength Index (RSI) is nearing overbought territory, indicating potential consolidation. However, the Moving Average Convergence Divergence (MACD) remains bullish, suggesting the uptrend could extend.
The index faces resistance at 107.00, with a key support zone between 106.00 and 105.00.
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
