- The DXY Dollar Index fell to 103.45, representing a loss of 0.30%.
- The index will also record a weekly loss of 0.30%.
- S&P Global PMIs showed a mixed picture, with the manufacturing sector weakening and the services sector expanding.
The US Dollar (USD) retreats on Friday, with the DXY Dollar Index, which measures the value of the US Dollar against a basket of major currencies, falling towards 103.45, due to mixed S&P Global PMIs and subdued expectations around to the Fed.
In line with this, the US economy is showing general signs of cooling inflation and job creation, and soft S&P PMIs gave signs of a weakening economy. This economic outlook leads traders to believe that the Federal Reserve (Fed) will adopt a less aggressive stance, weakening the US dollar.
Daily market summary: Dollar continues to decline after weakening US manufacturing sector
- The DXY Dollar Index is trading lower and retreats towards 103.45 on Friday.
- In November, the S&P Global Composite PMI was stable at 50.7, a sign of modest growth in the US private sector.
- The manufacturing PMI fell to 49.4, indicating a turn toward contraction, and the services PMI rose marginally to 50.8.
- What worried investors appeared to be the report of the first decline in employment in the US services and manufacturing sectors since mid-2020, driven by lower demand and rising costs.
- The markets response included expectations of a more cautious Federal Reserve, which translated into a weaker US dollar.
- Markets are confident that the Federal Reserve will not raise rates in December and are betting on four rate cuts in 2024, starting in May.
Technical Analysis: US Dollar Hints at Possible Reversal as RSI Approaches 30
While the daily Relative Strength Index (RSI) is approaching oversold conditions, suggesting a somewhat oversaturated bear market, it also indicates the possibility of a bullish reversal as selling pressure appears to ease. This notion is reinforced by the MACD, which shows flat red bars, a sign of an easing of bullish sentiment with no clear direction.
Furthermore, the DXY index’s position below the 20-day, 100-day, and 200-day SMA also suggests that sellers have the upper hand.
Support levels: 103.40, 103.30 and 103.15.
Resistance levels: 103.60 (200-day SMA), 104.00, 104.20 (100-day SMA).
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.
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, 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.
