- The Dollar Index remains neutral on Tuesday near the key 103.00 level.
- Fed officials remain cautious about easing policy too much, too soon.
- Thursday’s CPI numbers will be key to the DXY move.
The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, is flat on Tuesday. Despite the initial rise, the DXY has stabilized around 102.50 and is awaiting further direction.
Economic indicators suggest mixed signals for the US economy. While some data points to a slowdown, other metrics indicate continued resilience. The Federal Reserve (Fed) has emphasized that its approach to easing monetary policy will be guided by incoming economic data, suggesting a cautious stance that will depend on the evolving economic outlook.
Market Drivers: US Dollar Flat as Fed Bets Adjust, CPI Looms
- Fed officials remain cautious, emphasizing the risks of premature easing and indicating that additional gradual cuts could be appropriate.
- The probability of a 50 basis point cut in November or December is now zero, and a 25 basis point cut next month only has a 90% probability.
- Despite the strong economic data, the market still anticipates a total of 125 basis points of easing over the next 12 months.
- Thursday’s Consumer Price Index (CPI) data could shake up USD momentum and upcoming bets on the Fed.
DXY Technical Outlook: DXY pauses bullish momentum, resistance limits upside
Technical analysis of the DXY index indicates a temporary pause in bullish momentum after a recent winning streak. The Relative Strength Index (RSI) and Moving Average Convergence/Divergence (MACD) indicators remain firmly in positive territory, suggesting potential for further gains. Although the short-term outlook has improved, the overall bias remains bearish for the USD.
Key support levels are at 102.30, 102.00 and 101.80, while resistance levels are at 103.00, 103.50 and 104.00.
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.
