US Dollar remains strong as FOMC minutes give little clues

FOMC Meeting Minutes are the next shoe to drop later on Tuesday.
USD fluctuates after positive Consumer Confidence figures from the Conference Board before volatility subsides.
President-elect Trump threatens tariffs on Mexico, Canada and China, boosting the Greenback.

In Tuesday's session, the US Dollar Index (DXY) which measures the value of the Greenback against a basket of currencies, fluctuated near 107.00 following the release of key economic data. In the meantime, markets digest President-elect Donald Trump’s threat to impose tariffs on three of its largest trading partners and look for clues in the Federal Open Market Committee (FOMC) Meeting Minutes from the Novemeber meeting.

The US Dollar Index has exhibited a bullish bias, driven by strong economic data and a less dovish Federal Reserve (Fed) stance. Despite recent pullbacks due to profit-taking and geopolitical uncertainty, the uptrend remains intact. Technical indicators suggest potential consolidation with overbought conditions easing.

Daily digest market movers: US Dollar appears neutral after Consumer Confidence data, FOMC minutes

Consumer Confidence in the United States improved in November with the Conference Board's index increasing from 109.6 to 111.7.
The Present Situation Index rose by 4.8 points to 140.9, while the Expectations Index edged higher to 92.3.
Regarding the FOMC minutes,Federal Reserve officials had mixed views on further rate cuts but agreed not to signal future policy direction clearly.
They emphasized focusing on economic trends amid volatile data and acknowledged challenges in assessing the neutral interest rate's impact on activity.
Opinions ranged from pausing rate cuts if inflation stays high to accelerating them if the economy weakens.
After of the FOMC Minutes, the CME FedWatch Tool estimates a 59% probability of a further 25 bps rate cut by the Fed on December 18.
The US 10-year Treasury benchmark rate declined to 4.29%, down from its recent high of 4.50%.

DXY technical outlook: Consolidating near 107.00, uptrend remains intact despite recent pullbacks

The DXY is consolidating after a strong rally, having pulled back from two-year highs. The index is currently hovering around 107.00, near the upper end of its recent trading range.

Technical indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), are suggesting potential for a correction, but the overall bullish momentum remains strong. The DXY is likely to face resistance at 108.00 and support at 106.00-106.50. A break above 108.00 would signal a continuation of the uptrend, while a break below 106.00 would indicate a deeper correction is possible.

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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