- The US dollar is trading in positive territory for the fourth consecutive day on Wednesday.
- Traders prepare for US CPI data for October, with a rise in inflation expected.
- The US Dollar Index is trading above 106.00, approaching a new six-month high.
The US Dollar (USD) attempts to continue its rise on Wednesday, signaling that it still has fuel in its tank for a further push backed by rising US yields. Trump’s trade is becoming increasingly valued, and, As the Fed continues to rely on data, traders are gradually reducing bets on another interest rate cut in December, a scenario that could give the dollar another push higher.
The US economic calendar has one of its focal points this week with the publication of the US Consumer Price Index reading for October. Expectations for the headline monthly figure are in a very tight range between 0.1% and 0.3%, making a consensus call of 0.2%. That means any number outside that range will trigger a substantial move in the markets.
Daily Market Summary: December rate cut hangs in the balance
- The Mortgage Bankers Association (MBA) kicks off the calendar this Wednesday at 12:00 GMT with its weekly Mortgage Applications tracker. Last week, applications fell 10.8%.
- The release of the US Consumer Price Index (CPI) for October is scheduled for 13:30 GMT:
- Headline monthly inflation is expected to remain stable at 0.2%, with the annual reading rising to 2.6% from 2.4%.
- Monthly core inflation is expected to remain unchanged at 0.3%, with the annual figure also stable at 3.3%.
- Five members of the Federal Reserve are scheduled to speak this Thursday:
- Federal Reserve Bank of Minneapolis President Neel Kashkari will be interviewed on Bloomberg TV at 13:30 GMT.
- Around 2:30 p.m., Federal Reserve Bank of New York President John Williams will give a welcome speech at the Master Class Teacher Academy in New York.
- Federal Reserve Bank of Dallas President Lorie Logan will give a keynote address at the ninth joint energy conference hosted by the Federal Reserve Banks of Dallas and Kansas City around 14:45 GMT.
- The president of the Federal Reserve Bank of St. Louis, Alberto Musalem, will give a speech and participate in a question and answer session on the US economy and monetary policy at the Economic Club of Memphis at 6:00 p.m.: 00 GMT.
- Comments are expected around 18:30 GMT from Federal Reserve Bank of Kansas City President Jeffrey Schmid, who will give a keynote address at the ninth joint energy conference hosted by the Federal Reserve Banks of Dallas and Kansas City.
- Stocks are looking for direction after their lackluster performance on Tuesday. Marginal gains and losses are seen in both European and US equity markets.
- The CME FedWatch tool is pricing another 25 basis point (bps) rate cut by the Fed at the December 18 meeting at 62.4%. There is a 37.6% chance that rates will remain unchanged. Although the rate cut scenario is the most likely, traders have reduced some rate cut bets compared to a week ago.
- The US benchmark 10-year yield is trading at 4.41%, after briefly hitting 4.45% this Wednesday in Asian trading.
DXY Dollar Index Technical Analysis: This is where it gets hot
The US Dollar Index (DXY) is adding more gains to its recovery. That makes sense seeing where US yields are trading since this summer. The main problem could be that the trade is starting to overheat, increasing the chances of a correction soon under some profit taking.
All eyes are now on 106.52, the April high and a double top as it would mean a new 2024 high. Once the level is broken, 107.00 comes into play with 107.35 as the next pivotal level to watch.
On the downside, the round level at 104.00 and the 200-day SMA at 103.88 should prevent the DXY from declining further. Before that level, there is not much in the way, perhaps with some slight support at 104.63 (October 30 high).
Dollar Index: Daily Chart
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.
