- The US Dollar is trading lower against its rivals and appears to be consolidating last session’s gains.
- Core PCE for September stood at 3.7% year-on-year, in line with expectations.
- US bond yields are mixed, while dovish bets on the Fed remain high.
- Attention now turns to next week’s FOMC decision.
He US dollar (USD) measured by the Dollar Index (DXY) It fell to 106.35, near the 20-day SMA, and will likely close the week with gains. In terms of data, September’s core Personal Consumption Expenditure (PCE) figures showed no surprises, and investors appear to be taking profits after three consecutive days of gains.
The U.S. economy remains strong, as evidenced by the latest set of economic activity figures, which included a preliminary estimate of third-quarter Gross Domestic Product (GDP), which increased at an annualized rate of more than 4%. Investors are now looking to the Federal Reserve’s (Fed) decision next week, on the first day of November, for more clues about the entity’s next steps.
Daily summary Market movements: Dollar retreats amid slowdown in underlying PCE in September and mixed yields
- The US Dollar Index DXY fell towards 106.35, down 0.25% after gaining almost 1% in the last three sessions.
- The US Bureau of Economic Analysis reported that the overall PCE price index for September was in line with the expected value. It stood at 3.4% year-on-year versus the expected 3.4% and showed no change from its latest figure of 3.4%. The underlying figure stood at 3.7% year-on-year, compared to the consensus of 3.7%, and decelerated from its previous figure of 3.8%, which was revised downwards.
- Other data showed that the Michigan Consumer Index came in higher than expected at 63.8 versus 68 expected, but it did not cause a significant reaction from the Dollar.
- Meanwhile, US Treasury yields are mixed. The 2-year yield stands at 5.03%, and the 5- and 10-year yields at 4.79% and 4.85%, respectively.
- For next week’s Fed decision, markets have practically priced in a pause, but the monetary policy statement and Chairman Powell’s words will be closely monitored to position oneself for the next meeting in December.
- According to CME’s FedWatch tool, the odds of a hike at the last meeting of the year dropped to almost 20%.
Technical Analysis: DXY Bulls Must Defend 20-Day SMA to Continue Rising
Based on the daily chart, the technical outlook for the DXY index remains neutral to bullish as the bulls gained significant momentum in recent sessions. To hold it, they must defend the 20-day SMA at 106.35.
Meanwhile, the Relative Strength Index (RSI) is sloping negatively above its midline, while the Moving Average Convergence Divergence (MACD) indicator prints stagnant red bars. Furthermore, the pair is above the 20,100 and 200-day SMAs, indicating favorable positioning for the bulls in the overall picture.
Supports: 106.35 (20-day SMA), 106.00, 105.70.
Resistances: 107.00, 107.30, 107.50.
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 many other countries where it circulates 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.
How do the decisions of the Federal Reserve 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, it 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 maturing capital into 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.
