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- US Dollar slips ahead of packed week
US Dollar slips ahead of packed week
- The DXY index declines to 105.60, still consolidating last week’s gain.
- US October’s headline CPI is expected to have decelerated, and the core measure remains stagnant.
- The economic docket features no relevant high-tier reports on Monday.
The US Dollar (USD) slides on Monday with the DXY index, which measures the value of the US Dollar versus a basket of global currencies, falling to 105.60 on the back of declining US bond yields and investors taking profits from last week’s gains. Focus now shifts to Tuesday’s Consumer Price Index (CPI) data from October and Retail Sales figures from the same month on Wednesday.
Even though the United States labor market has started to show signs of weakness, several Federal Reserve (Fed) officials, including Chair Powell, hinted that the work on inflation isn’t done and opened the door for further monetary tightening. In that sense, as the central bank remains data-dependent, high-tier data will shape the decision of the Fed's last meeting in December. For now, according to the CME FedWatch Tool, the odds of a hike are low, near 10%, but swaps markets seem to be delaying interest rate cuts from May to June.
Daily Digest Market Movers: US Dollar flattens, consolidating weekly gains
- The US Dollar Index stands around 105.60 for a 0.20% loss.
- Markets await next week’s Consumer Price Index (CPI) figures from October in the US.
- Headline CPI is expected to decline to 3.3% YoY, while the core measure is forecasted to remain at 4.1% YoY.
- Retail Sales are expected to have contracted by 0.3% in October.
- US Treasury yields have edged higer on Monday, while the 2-year rate declined to 5.04%.
- According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are extremely low, below 10%.
Technical Analysis: US Dollar consolidates as bulls take a breath
The daily chart suggests that the DXY Index holds a neutral to bullish technical bias as charts show a brief consolidation period, indicating that the bulls are catching their breath after a gaining week. The Relative Strength Index (RSI) indicates a neutral stance below its midline, displaying a flat slope in negative territory, while the Moving Average Convergence (MACD) displays neutral red bars.
Evaluating the broader scale technical outlook, the pair is below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, suggesting that the bulls are in control on the broader time horizon but still need to put in extra effort to assert dominance in the short run.
Support levels: 105.50,105.30, 105.00.
Resistance levels: 106.00, 106.05 (20-day SMA), 106.30.
US Dollar FAQs
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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