US Dollar chunky after algo's mess up US Data release, Fed speakers up next

The US Dollar trades flat this Thursday in the US CPI release aftermath.
Markets were rather struggling with the Jobless Claims which are distorted due to the hurricanes passing.
The US Dollar Index trades above 102.50 and looks for support for now.

The US Dollar (USD) sees its rally stalling for now after the release from the US Consumer Price Index (CPI) data and the weekly Jobless Claims. Main takeaway is that all CPI components are coming in higher than expected, and is halting the disinflationary trajectory for now. Algo's sent the Greenback all over the place in the first seconds after CPI and Jobless Claims came in, because the higher Claims data was seen by the algo's as a negative factor for the US Dollar, while that number is out of context due to the hurricanes hitting the southern states in the US.

The economic calendar the Federal Reserve is up next with Ban kof New York President John Williams and Federal Reserve Governor Lisa Cook. Any comments from them might guide markets a bit more on this small uptick in the US inflation release. Fast forward to Friday then with markets facing the Producer Price Index and Prelimenary University of Michigan readings for September.

Daily digest market movers: Halt to monthly disinflation

US Treasury rates are rallying and are outpacing other sovereign rates, which means that rate differentials are widening again between the US and several other countries. This supports a stronger US Dollar across the board.
At 12:30 GMT, volatility picked up with these numbers:
- US Consumer Price Index data for September:
  - Monthly core inflation grew by 0.3%, unchanged from August.
  - In line with the core reading, monthly headline inflation saw the same print as in August at 0.2%..
  - Yearly core inflation rose to 3.3%, coming from 3.2%. The Yearly Headline component was the only one to remain in disinflation by coming in at 2.4%, from 2.5%.
- Initial Jobless Claims spiked higher to 258,000, coming from 225,000 previous week. Main reason seems to be the hurricanes hitting big parts of the US.
Near 13:15 GMT, Federal Reserve Governor Lisa Cook delivers a speech about entrepreneurship and innovation at the Women for Women Summit organized by the College of Charleston School of Business in Charleston, South Carolina. Cook is considered rather dovish in terms of policy stance.
At 15:00 GMT, Federal Reserve Bank of New York President John Williams delivers keynote remarks at an event organized by Binghamton University in New York. Williams is considered neutral in terms of policy stance.
European and US equities are not happy with these US inflation numbers. European indices are heading into small losses while US equities are descending further on the day.
The CME Fedwatch Tool shows an 80.1% chance of a 25 bps interest rate cut at the next Fed meeting on November 7, while 19.9% is pricing in no rate cut. Chances for a 50 bps rate cut have been fully priced out now.
The US 10-year benchmark rate trades at 4.06%, of its nearly two-month high for now.

US Dollar Index Technical Analysis: Algo's distort price action

The US Dollar Index (DXY) knows no limits and rallies higher again on Thursday ahead of the US CPI release. With the US rates rallying, it should become clear that markets are starting to put less faith in the Fed being in a rate-cut cycle. The elevated levels and probabilities of no more bigger rate cuts this year could mean a rallying Greenback going into the US elections.

The psychological 103.00 is the first level to tackle on the upside. Further up, the chart identifies 103.18 as the very final resistance level for this week. Once above there, a very choppy area emerges, with the 100-day Simple Moving Average (SMA) at 103.28, the 200-day SMA at 103.77, and the pivotal 103.99-104.00 levels in play.

On the downside, the 55-day SMA at 101.94 is the first line of defence, backed by the 102.00 round level and the pivotal 101.90 as support to catch any bearish pressure and trigger a bounce. If that level does not work out, 100.62 also acts as support. Further down, a test of the year-to-date low of 100.16 should take place before more downside. Finally, and that means giving up the big 100.00 level, the July 14, 2023, low at 99.58 comes into play.

US Dollar Index: Daily Chart

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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.

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