- The US Dollar extends its winning streak on Friday, with the DXY Index trading above 107.00 for the first time in more than two weeks.
- Signs of persistent inflationary pressure in the US give traction to the USD.
- There were no notable economic data in Friday’s session.
The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, is trading neutral on Friday with some minor gains in the US trading session. The Dollar is under some pressure from the profits after strong rallies against many of the major G20 currencies earlier this week. This pullback follows the release of new Chinese economic data and additional details on the stimulus package the Chinese government is implementing.
Additionally, the US Dollar appears to be gaining traction due to rising US Treasury yields, which appear to be offsetting the fact that markets are practically pricing in a cut in next week’s Fed decision.
Daily Market Summary: November PPI, Chinese stimulus boost market sentiment on quiet Friday
- The November PPI was high, with an overall increase of 3.0% year-on-year, exceeding the expected 2.6%. The October figure was revised to 2.6% (previously 2.4%).
- Core PPI (excluding food and energy) rose 3.4% year-on-year, beating analysts’ forecast of 3.2% and revising October’s figure to 3.4% (previously 3.1%).
- The PPI for services (excluding trade, transportation and storage) remained elevated at 4.6% year-on-year, suggesting persistent underlying inflation.
- Some analysts are downplaying the data due to a 56% rise in egg prices, but the core PPI still accelerated to the highest level since February 2023, pointing to widespread inflationary pressure.
- Despite the elevated inflation data, markets have fully priced in a 25 basis point Fed rate cut for next week, with many analysts predicting a hawkish cut that sets up a pause in January.
DXY Technical Outlook: Indicators show resilience, but upside is limited
The US Dollar Index continues to trade above the 107.00 level, maintaining its recovery from recent declines. On Friday, the DXY managed to hold above key levels despite mixed sentiment and speculation surrounding the Fed’s next move.
The RSI and MACD indicators suggest that the DXY has regained some ground, but could face resistance near the 107.00-107.50 range.
If the index breaks above this area, it could retest the 108.00 level, but momentum appears to be slowing, which could limit further upside in the near term.
The US Dollar FAQs
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.
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.
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.
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.
