- After a shaky Monday, the USD recovered, and Tuesday is unlikely to see much movement.
- Amid renewed market sentiment, US Dollar (DXY) gains and remains near the 103.00 mark.
- The market is pricing in a 100 bps rate cut by year-end.
On Tuesday, the US Dollar (USD), measured by the DXY Index, is capitalizing on recent recovery gains near the 103.00 mark subsequent to an improvement in market sentiment. In addition, caution due to absent news about the Middle Eastern conflict between Iran and Israel is also backing the Dollar's current position. However, the Greenback's trajectory throughout the day could potentially be limited by the high dovish bets on the Federal Reserve (Fed).
Markets are seeing that the US economic outlook is weak due to July’s soft data and seem to be fearing a recession, while officials are asking the public not to overreact to one data point.
Daily digest market movers: USD upside limited as markets price in 100 bps Fed easing by year-end
- Despite the USD gains, its potential is limited by the steady dovish bets on the Fed.
- Market anticipates a rate cut in September, leading to subsequent USD weakening.
- In addition, market is pricing in a 100 bps rate cut by year-end, with some odds of an additional 25 bps.
- Over 200 bps of total easing is priced in for the coming year, barring a deep US recession.
- Market anxiously awaiting incoming data to assess Fed easing narrative.
DXY technical outlook: Bulls step in, but bears still command
On the technical side, the DXY outlook turned bearish after a sharp decline in the Relative Strength Index (RSI), which fell into oversold territory in the last few trading sessions but seemed to recover on Tuesday. However, the outlook remains bearish, with the index still trading below the 20, 100 and 200-day Simple Moving Averages (SMAs).
Supports: 102.50, 102.20, 102.00
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.
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
AUD/USD regains 0.6500 helped by the RBA
AUD/USD rapidly left behind Monday’s yearly lows and managed to regain the 0.6500 hurdle and above as investors assessed another hawkish hold by the RBA at its meeting on Tuesday.
EUR/USD retreats from recent tops and refocuses on 1.0900
The renewed buying pressure in the Greenback weighed on the risk-linked assets, prompting EUR/USD to leave behind part of the recent two-day strong rebound and shift its attention to the 1.0900 region.
Gold loses traction, drops below $2,400 as US yields rebound
After fluctuating in a tight channel near $2,410, Gold reverses its direction and trades below $2,400. The recovery seen in the US Treasury bond yields following Monday's sharp decline doesn't allow XAU/USD to gain traction in the second half of the day.
Ripple sends key invite to researchers, pushes XRP 4% higher post massive sell-off
Ripple (XRP) suffered a steep correction in the crypto market carnage on Monday. XRP slipped to a $0.4300 low, its lowest level since mid-July, on August 5. But the altcoin has rallied 4% on Tuesday, erasing recent losses.
A pause for the cause
The Dollar selling ends on Monday and Monday night. Emergency rate cut? no way, Jose! Good Day.. And a Tom Teriffic Tuesday to you! My poor beloved Cardinals... They can't stand prosperity, and they continue to choose which games they will hit the ball.