fxs_header_sponsor_anchor

News

US Dollar defends its ground and shruggs off weak data

  • US Dollar weakens following disappointing New York manufacturing data, which contracted unexpectedly in October.
  • Fed officials remain cautious with Kashkari favoring modest rate cuts and Waller urging a slower pace.
  • Markets are pricing high odds of 25 bps cuts in November and December.

The US economy is facing mixed signals, with certain sectors indicating a slowdown, while others remain robust. Despite this, the Federal Reserve (Fed) has signaled that its approach to easing monetary policy will be guided by emerging economic indicators.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, struggles for traction, hovering above 103.00. A disappointing New York manufacturing report, indicating an unexpected contraction in October, has weighed on recent US Dollar momentum.

Daily digest market movers: US Dollar declines amid Fed caution and mixed data

  • Fed officials Kashkari and Waller express caution, suggesting a more gradual pace of rate cuts than previously expected.
  • Strong jobs and CPI data have tempered expectations of aggressive Fed easing, and 125 bps of total easing over the next 12 months.
  • The New York Empire State Manufacturing Index for October was released, showing a significant decline into contraction at -11.9. This contrasts with the previous increase of 11.5 and falls well below expectations, which had anticipated a modest rise to 2.3.
  • On Thursday, markets will follow Retail Sales figures, which might shake the USD dynamics and Fed bets.

DXY technical outlook: DXY index shows bullish momentum, nears resistance

Technical analysis for the DXY index suggests a positive outlook, with indicators gaining momentum. The index has crossed above the 100-day SMA and is approaching the 200-day SMA at 103.80, which will be a key resistance level. Still, the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators flash overbought signals, indicating potential profit-taking.

Support lies at 103.00, 102.50 and 102.30. Resistance levels are located at 103.30, 103.50 and 104.00.

Fed FAQs

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.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.


RELATED CONTENT

Loading ...



Copyright © 2024 FOREXSTREET S.L., All rights reserved.