- Investors continue to bet on the start of the relaxation cycle in June, guided by the data that is becoming known.
- The dollar is resilient despite the Fed's somewhat dovish stance and falling US Treasury yields.
- Next week the PCE figures for February will be published in the US.
The US Dollar Index (DXY) is currently trading at 104,428 points, its highest level since mid-February. In particular, ongoing data continues to raise expectations for the start of the Federal Reserve's (Fed) easing cycle, which most agree will begin in June. The Fed rejected higher inflation results, and its president, Jerome Powell, reassured the markets by ensuring that the entity will not react hastily to two consecutive months of rising inflation figures. Furthermore, interest rate forecasts from 2024 were unchanged.
The U.S. economy remains resilient, with a strong labor market and inflation holding firm. Next week, February personal consumption expenditures (PCE) will provide additional guidance to markets.
Daily summary of market movements: DXY continues to rise on a calm Friday
- The US dollar's resilience is evident despite market expectations of moderate moves as continued gains are seen.
- The Fed has released generally stronger U.S. data, and Fed officials have been wary of easing too aggressively or prematurely.
- Jerome Powell was on the microphones earlier in the sessions, but did not provide any highlights. Barr and Bostic will deliver speeches during the American session.
- US Treasury yields are falling, with the 2-year trading at 4.60%, the 5-year at 4.19% and the 10-year yield at 4.21%, with all three seeing sharp declines.
DXY Technical Analysis: DXY Holds Firm with Consistent Buying Momentum
The daily chart indicators reflect bullish momentum. The Relative Strength Index (RSI) is on a positive slope, residing in positive territory. This illustration signifies continued strength from buyers, implying the possibility of further near-term appreciation.
At the same time, the moving average convergence divergence (MACD) shows ascending green bars. This growing bullish divergence indicates that bullish momentum is increasing and the probability of a bullish push is increasing.
Looking at the broader scale of technical elements, the DXY's positioning above the convergence of its 20-day, 100-day, and 200-day SMA near 103.50-103.70 reinforces a bullish bias on broader time frames.
Inflation FAQ
What is Inflation?
Inflation measures the rise in prices of a representative basket of goods and services. General inflation is usually expressed as a month-on-month and year-on-year percentage change. Core inflation excludes more volatile items, such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the target level of central banks, which are mandated to keep inflation at a manageable level, typically around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the variation in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage of inter-monthly and inter-annual variation. Core CPI is the target of central banks as it excludes food and fuel volatility. When the underlying CPI exceeds 2%, interest rates usually rise, and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually translates into a stronger currency. The opposite occurs when inflation falls.
What is the impact of inflation on currency exchange?
Although it may seem counterintuitive, high inflation in a country drives up the value of its currency and vice versa in the case of lower inflation. This is because the central bank will typically raise interest rates to combat higher inflation, attracting more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Gold was once the go-to asset for investors during times of high inflation because it preserved its value, and while investors often continue to purchase gold for its safe haven properties during times of extreme market turmoil, this is not the case. most of the time. This is because when inflation is high, central banks raise interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity cost of holding Gold versus an interest-bearing asset or placing money in a cash deposit account. On the contrary, lower inflation tends to be positive for Gold, as it reduces interest rates, making the shiny metal a more viable investment alternative.
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.
