- The DXY rose by more than 0.80% to 103.90 on Friday
- US Nonfarm Payrolls came in higher than expected for January.
- US bond yields are sharply increasing as markets push to May the start of the easing cycle.
The US Dollar (USD) rose to 103.90 on Friday’s Dollar Index (DXY) chart, mainly fueled by a promising labor market report that has convinced markets a March rate cut is not in the cards.
Fed Chair Powell reinforced the idea that a rate cut in March is unlikely despite ongoing market speculation. In line with that, he stated that the bank will monitor incoming data to set the timing of the easing cycle. As the US labor market remains tight, the bank might consider delaying rate cuts.
Daily digest market movers: US Dollar rallies as markets digest strong labor market data
- Unemployment for January held steady at 3.7%, lower than the 3.8% expected.
- Nonfarm Payrolls increased significantly, surpassing expectations for January. A reported 353K additional jobs were created in the US against a projected 180K, indicating robust job market growth.
- Average Hourly Earnings for January, as per US Bureau of Labor Statistics, were up by 0.6% MoM, exceeding the consensus of 0.3%.
- Annual Average Hourly Earnings for 2024 arrived at 4.5%, surpassing the previous 4.4%.
- US bond yields sharply rose with 2-year, 5-year and 10-year bonds trading at rates of 4.38%, 4.00% and 4.05%, respectively.
- According to the CME FedWatch Tool, the odds of a cut in March plummeted to 20%.
Technical Analysis: DXY bulls show resilience and jump above the 200-day SMA
The indicators on the daily chart indicate a dominance of buying pressure, despite some contrasting signals. The Relative Strength Index (RSI) gliding on a positive slope and in positive territory suggests a build-up of buying momentum, which is further solidified by the rising green bars of the Moving Average Convergence Divergence (MACD). However, mixed signals emanate from the Simple Moving Averages (SMAs). Although the index is above both the 20-day and 200-day SMAs, signifying a bullish outlook, it remains below the 100-day SMA, indicating a bearish hindrance.
Interest rates FAQs
What are interest rates?
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.
How do interest rates impact currencies?
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.
How do interest rates influence the price of Gold?
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.
What is the Fed Funds rate?
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.
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays near 1.0400 in thin holiday trading
EUR/USD trades with mild losses near 1.0400 on Tuesday. The expectation that the US Federal Reserve will deliver fewer rate cuts in 2025 provides some support for the US Dollar. Trading volumes are likely to remain low heading into the Christmas break.
GBP/USD struggles to find direction, holds steady near 1.2550
GBP/USD consolidates in a range at around 1.2550 on Tuesday after closing in negative territory on Monday. The US Dollar preserves its strength and makes it difficult for the pair to gain traction as trading conditions thin out on Christmas Eve.
Gold holds above $2,600, bulls non-committed on hawkish Fed outlook
Gold trades in a narrow channel above $2,600 on Tuesday, albeit lacking strong follow-through buying. Geopolitical tensions and trade war fears lend support to the safe-haven XAU/USD, while the Fed’s hawkish shift acts as a tailwind for the USD and caps the precious metal.
IRS says crypto staking should be taxed in response to lawsuit
In a filing on Monday, the US International Revenue Service stated that the rewards gotten from staking cryptocurrencies should be taxed, responding to a lawsuit from couple Joshua and Jessica Jarrett.
2025 outlook: What is next for developed economies and currencies?
As the door closes in 2024, and while the year feels like it has passed in the blink of an eye, a lot has happened. If I had to summarise it all in four words, it would be: ‘a year of surprises’.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.