- The DXY registers slight losses and is trading around 103.20.
- Key data on inflation and economic activity in the United States will be released this week.
- Market bets on the Fed's rate cut continue to adjust.
He US dollar (USD) It is trading with slight losses at 103.25. This slight drop occurs within the framework of a calm session that anticipates a week full of events.
The US economy remains robust, with consistently strong data suggesting potential growth in the fourth quarter and likely stability in the first quarter of 2024. Turning to the Federal Reserve, market expectations have been adjusted, and the market anticipates approximately 125 basis points (bp) of easing over the course of 2024, versus the nearly 175 bp previously anticipated, which gave the dollar a boost in early January. Core Personal Consumption Expenditure (PCE) may shape the Fed's near-term expectations and will be released on Friday.
Daily summary of market movements: The Dollar is under slight pressure in a calm session, with an eye on the PCE and GDP data.
- December Personal Consumption Expenditure (PCE) data will be released in the United States on Thursday, which is expected to show stagnating inflation. That day the Gross Domestic Product (GDP) figures for the fourth quarter will also be published and the Markets expect that economic activity has cooled down.
- US Treasury yields are in recession, with the 2-year yield at 4.37%, the 5-year yield at 4.02%, and the 10-year yield at 4.10%.
- CME's FedWatch tool indicates that the odds of a rate cut in March have fallen to 50%. No policy changes are expected at next week's Fed meeting.
Technical Analysis: DXY with bullish momentum, fails to stay above the 200-day SMA
The Relative Strength Index (RSI) in positive and flat territory points towards a neutral stance in the current market dynamics, without clearly leaning towards either buyers or sellers. Paired with the flat green Moving Average Convergence Divergence (MACD) bars, this suggests minor bullish momentum waiting in the wings for the DXY, especially since it implies a declining sellers' market.
Positioning of the DXY relative to the simple moving averages (SMA) provides a more detailed picture of the market trend. The presence above the 20-day SMA reveals that buyers are in basic control in the short term. However, DXY's positioning below the 100-day and 200-day SMAs indicates that sellers maintain dominance in the long term.
Support levels: 103.20, 103.00, 102.80.
Resistance levels: 103.40 (200-day SMA), 103.60, 103.80.
US Dollar FAQ
What is the US dollar?
The United States dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions.
After World War II, the USD took over from the pound sterling as the world's reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement of 1971, when the gold standard disappeared.
How do Federal Reserve decisions affect the dollar?
The single most important factor influencing the value of the US dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the Unemployment Rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
What is Quantitative Easing and how does it influence the dollar?
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system.
This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of interest rates is unlikely to achieve the necessary result. It was the Fed's weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US dollar.
What is quantitative tightening and how does it influence the US dollar?
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
