- The US Dollar pares gains with markets focusing on the Fed rate decision later this Thursday.
- Fed Chairman Powell is not expected to answer questions on politics, markets will be keen to see his reaction on President-elect Trump.
- The US Dollar index dips lower into 104-territory and is unable to hold Wednesday's gains.
The US Dollar (USD) keeps seeing selling pressure throughout the trading day on Thursday, with profit-taking pressure persisting after the Greenback had its best performance in years in reaction to Donald Trump winning the US presidential election. Traders’ attention shifts now to the Federal Reserve (Fed), which is set to cut interest rates by 25 basis points (bps) this Thursday. With the rate decision fully priced in, the focus will be on Fed Chairman Jerome Powell, specifically on the inflation and rate outlook for December and beyond in light of the US presidential election outcome.
The US economic calendar is picking up in weight, with the weekly Jobless Claims set to be released. The quarterly Nonfarm Productivity and Unit Labor Costs will add some weight to the price reaction as well. Right at the end of the trading day, the Fed will release its rate decision, followed by Fed Chairman Powell’s press conference shortly thereafter.
Daily digest market movers: A bit of everything
- The US economic calendar kicked off at 13:30 GMT with a string of data:
- The Initial Jobless Claims for the week ending on November 1 came in at 221,000, in line with expectations. Last week's numbers got revised up to 218,000, coming from 216,000.
- The preliminary reading for the third quarter Nonfarm Productivity came in at 2.2%, just shy of the 2.3% estimate. The previous quarter's number got revised down to 2.1%, coming from 2.5% previously.
- The preliminary third quarter Unit Labor Cost came in much higher on all fronts. The current number came in at 1.9%, beating the 0.5% consensus. The previous quarter number got revised up sharply to 2.4%, from 0.4%.
- At 19:00 GMT, the Fed is publishing its interest rate decision. Expectations are for a rate cut to 4.75% from 5%.
- At 19:30 GMT, Fed Chairman Jerome Powell will take the stage to deliver a speech and comments on the recent rate decision. During the press conference, there are bound to be questions on the Fed’s stance in light of the recent Trump presidential election win.
- Equities are looking sluggish this Thursday for the US. Winners were the losers from Wednesday, with European and Chinese equities set to close off this Thursday with upbeat performances.
- The CME FedWatch Tool shows a 70.8% chance that the interest rate will be 50 basis points (bps) lower than the current level in the Federal Reserve’s December 18 meeting. Assuming a 25 bps cut in November, a new 25 bps cut could be expected in December. A smaller 28.4% chance is present for the interest rate to be 25 bps lower than the current level in December, implying no cut that month after trimming rates in November..
- The US 10-year benchmark rate trades at 4.39%, settling down a bit after hitting 4.47% earlier.
US Dollar Index Technical Analysis: Powell's body language on Trump questions will reveal a lot
The US Dollar Index (DXY) has played its hand and has made markets clear what the famous Trump trade will mean for markets when US President-elect Donald Trump takes office on January 20, 2025. While the Fed is set to continue its interest rate-cut cycle, a tug-of-war might occur. Traders could expect the second phase of the Trump trade in January with a stronger Greenback, while the Fed rate-cutting cycle suggests a softer Greenback. Refrain from expecting this to be a straight line-up for the DXY and rather expect to see substantial easing first before Trump takes office.
The first upper level is 105.53 (April 11 high), a very firm cap resistance, with 105.89 (May 2 high) just above. Once that is broken, 106.52, the high of April and a double top, will be the last level standing before starting to talk about 107.00.
On the downside, last week’s peak at 104.63 looks to be the first pivotal support nearby. Should the fade become bigger, the round level of 104.00 and the 200-day Simple Moving Average (SMA) at 103.85 should refrain from sending the DXY any lower.
US Dollar Index: Daily Chart
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. 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 extends recovery beyond 1.0400 amid Wall Street's turnaround
EUR/USD extends its recovery beyond 1.0400, helped by the better performance of Wall Street and softer-than-anticipated United States PCE inflation. Profit-taking ahead of the winter holidays also takes its toll.
GBP/USD nears 1.2600 on renewed USD weakness
GBP/USD extends its rebound from multi-month lows and approaches 1.2600. The US Dollar stays on the back foot after softer-than-expected PCE inflation data, helping the pair edge higher. Nevertheless, GBP/USD remains on track to end the week in negative territory.
Gold rises above $2,620 as US yields edge lower
Gold extends its daily rebound and trades above $2,620 on Friday. The benchmark 10-year US Treasury bond yield declines toward 4.5% following the PCE inflation data for November, helping XAU/USD stretch higher in the American session.
Bitcoin crashes to $96,000, altcoins bleed: Top trades for sidelined buyers
Bitcoin (BTC) slipped under the $100,000 milestone and touched the $96,000 level briefly on Friday, a sharp decline that has also hit hard prices of other altcoins and particularly meme coins.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
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.