- The DXY falls back to 105.60, consolidating last week’s rise.
- US October headline CPI is expected to have slowed and core CPI to remain stagnant.
- Monday’s economic agenda does not include relevant reports.
He US dollar (USD) falls on Monday with the US Dollar Index (DXY), which measures the value of the US dollar against a basket of global currencies, falling to 105.60 as US bond yields decline and investors take profits from the gains from last week. Attention now turns to Tuesday’s October Consumer Price Index (CPI) data and Wednesday’s October retail sales figures.
Although the US labor market has begun to show signs of weakness, several Federal Reserve (Fed) officials, including Chairman Powell, suggested that the work on inflation is not over and opened the door to further monetary tightening. . In that sense, since the central bank remains dependent on data, high-level data will determine the decision of the last Fed meeting in December. For now, according to CME’s FedWatch tool, the odds of a hike are low, close to 10%, but swap markets appear to be delaying interest rate cuts from May to June.
Daily Summary of Market Movements: The Dollar Flattens and Consolidates Weekly Gains
- The Dollar Index is around 105.60, with a loss of 0.20%.
- Markets are awaiting October Consumer Price Index (CPI) figures in the US next week.
- The headline CPI is expected to decline to 3.3% year-on-year, while the core CPI would remain at 4.1% year-on-year.
- Retail sales would have contracted 0.3% in October.
- US Treasury yields rose on Monday, while the 2-year rate fell to 5.04%.
- According to CME’s FedWatch tool, the odds of a 25 basis point hike in December are extremely low, below 10%.
Technical Analysis: Dollar consolidates as bulls take a breather
The daily chart suggests that the US Dollar Index (DXY) maintains a technical bias between neutral and bullish, as the charts show a brief period of consolidation, indicating that the bulls are catching their breath after a week of gains. The Relative Strength Index (RSI) indicates a neutral stance below its midline, showing a flat slope in negative territory, while the Moving Average Convergence (MACD) shows neutral red bars.
Assessing the technical picture on a larger scale, the pair is below the 20-day SMA, but above the 100-day and 200-day SMA, suggesting that the bulls are in control on the horizon. longer term, but they must still do more to impose their dominance in the short term.
Support levels: 105.50,105.30, 105.00.
Resistance levels: 106.00, 106.05 (20-day SMA), 106.30.
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. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement of 1971, when the gold standard disappeared.
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 the principal of maturing bonds 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.
