US Dollar declines as markets gear for CPI data
|- DXY snapped a five-day winning streak and seems to be taking a breather below 103.00
- Fed easing expectations have been tempered following last week’s jobs report
- Fed speakers are expected to reiterate a gradual approach
The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, witnessed a calm Monday session with mild losses, holding steady despite elevated levels near last week's highs. Amidst ongoing Middle East tensions, market participants await key events this week, including the release of the Federal Reserve's (Fed) Federal Open Market Committee (FOMC) Meeting Minutes and US Consumer Price Index (CPI) data.
While the US economy exhibits moderate deceleration, indications of economic resilience persist. Despite this, the Fed maintains a data-driven approach, emphasizing the significance of incoming economic indicators in determining the pace of interest rate adjustments. In that sense, last week’s jobs report made markets price out a 50 bps cut in November or December.
Daily digest market movers: Falling US Dollar as markets await CPI data
- The probability of a 50 bps cut in November or December is now zero, according to swap markets, and a 25 bps cut next month is only 90% priced in
- Despite strong economic data, the market still anticipates 125 bps of total easing in the next 12 months
- Multiple Fed speakers this week are anticipated to emphasize data-dependency
- This week, headline and core CPI are expected to show a mild deceleration in September, and its outcome might put a stop to the USD’s upwards movement
DXY technical outlook: DXY momentum rests, resistance at 103.00
Indicators are resting after last week's gains, with the index ending a five-day uptrend. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are firmly in positive territory with room for further upside.
Supports: 102.30, 102.00, 101.80
Resistances: 103.00, 103.50, 104.00
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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