- The two-day FOMC meeting kicks off on Tuesday with a hold priced in for Wednesday’s interest rate decision.
- US consumer sentiment declined in April, while Q1 Employment Cost Index increased.
- Hawkish bets on the Fed continue to favor the USD.
The US Dollar Index (DXY) is presently trading higher at 105.95, while the two-day Federal Reserve (Fed) meeting kicked off. Markets are expecting a hawkish hold by the central bank, but messaging by Jerome Powell will be key. On Tuesday, positive mid-tier data is acting as a tailwind for the Greenback.
The US economy is witnessing resilience and persistent inflation, which makes a case for a hawkish hold by the Federal Open Market Committee (FOMC), which will likely show their lack of confidence in the progress being made.
Daily digest market movers: DXY rises as markets gear up for Fed decision, mid-tier data supports Greenback
- Conference Board's Consumer Confidence Index in the US dropped in April to the lowest level since July 2022, at 97.0, falling from March’s figure of 103.1.
- Elsewhere, the Employment Cost Index in the US rose by 1.2% YoY in the first quarter.
- Market expectations show a 10% chance of a rate cut in June by the Fed, with odds decreasing to 33% for July, and remaining below 75% for September.
- For Wednesday, there are growing expectations for a hawkish surprise due to key Fed officials advocating for patience before initiating easing measures.
DXY technical analysis: DXY recovers as bulls make a stride, bears around the corner
The technical outlook of DXY indicates predominantly bullish momentum. The Relative Strength Index (RSI) presents a positive slope in positive territory, indicating the dominance of the buying side. The flat green bars viewed in the Moving Average Convergence Divergence (MACD) align closely with this bullish sentiment but warn of flattening momentum.
That being said, the index remains above its 20, 100, and 200-day Simple Moving Averages (SMAs). This points consistently toward a dominating bullish backdrop. Hence, even as short-term challenges are dense, the larger trend appears to lean in favor of bulls.
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.
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 treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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.