- The DXY index falls below 103.00 due to disappointing US Producer Price Index figures.
- US economic growth continues to trend upward, suggesting that markets may be overestimating the requirements for aggressive easing.
- CPI is now in focus for a clearer outlook on inflation.
On Tuesday, the United States Dollar (USD)The US dollar index (DXY) showed a slight decline, falling below the 103.00 level. This decline followed disappointing figures from the Producer Price Index (PPI), which missed analysts’ estimates.
Based on all economic data, the US economy continues to achieve above-trend growth. This suggests that market participants may be overestimating the need for aggressive monetary easing, as the Federal Reserve (Fed) may require more data before making cuts.
Daily Market Wrap: Slight decline follows disappointing PPI figures
- The US Producer Price Index (PPI) for final demand showed a year-on-year increase of 2.2% in July, less than the market expectation of 2.3%.
- The year-over-year adjusted core PPI also rose 2.4%, missing analysts’ estimated increase of 2.7%.
- On a monthly basis, the PPI saw an increase of 0.1%, while the core PPI remained unchanged.
- For now, a 50 basis point cut is possible, but will be entirely data dependent, with current probabilities around 55%. The market still fully expects a 100 basis point easing by year-end and a total of 175-200 basis points of cuts over the next 12 months.
- This rate path seems unlikely unless the US economy enters a severe recession.
DXY Technical Outlook: Bearish Trends Continue Amid Weak Buying Efforts
There is no significant change in the technical outlook for the DXY, considering the moderate selling pressure. The momentum-based RSI remains stable below the 50 mark, indicating a sustained selling approach. The MACD indicator continues to plot negative values as the red bars level out, demonstrating continued bearish activity despite the market’s flat movement on Tuesday.
The index’s position is below the 20-, 100- and 200-day SMAs, pointing to a predominantly bearish trend.
Support levels: 102.80, 102.50, 102.20
Resistance levels: 103.00, 103.50, 104.00
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. As of 2022, it is the most traded currency in the world, accounting for over 88% of all global foreign exchange transactions, equivalent to an average of $6.6 trillion in transactions per day. Following World War II, the USD took over from the British Pound 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: to achieve price stability (control inflation) and to promote full employment. Its main tool for achieving these two goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises rates, which helps 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 in a jammed financial system. It is an unconventional policy measure used when credit has dried up because banks are not lending to each other (for fear of counterparty default). It is a last resort when simply lowering 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 typically leads to a weakening of the US dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing securities in new purchases. It is generally 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.
