- The DXY is trading near 106.00 with subdued price action as markets prepare for the November CPI.
- Inflation data is expected to rise, keeping the Fed’s cautious tone in focus.
- Profit taking moderates gains, but strong economic data continues to support the dollar.
The US Dollar Index (DXY) is holding steady around the 106.00 level as markets recalibrate following last week’s robust Non-Farm Payrolls (NFP) data. Although a rate cut by the Federal Reserve (Fed) is widely anticipated in December, attention now turns to November Consumer Price Index (CPI) data due on Wednesday. Analysts expect annual headline inflation to rise to 2.7% from 2.6% in October, while core CPI is expected to remain unchanged at 3.3%.
Despite some profit-taking following recent rallies, the Dollar remains supported by strong US economic fundamentals, with solid growth and sentiment indicators offering continued support.
Market Drivers and Daily Market Movements: US Dollar Moves Sideways with Key Data Ahead, Supported by Strong Economic Outlook
- November headline CPI inflation is forecast to rise to 2.7%, while core inflation is expected to remain stable at 3.3%.
- NFIB Small Business Optimism rose to 101.7, its highest level since June 2021, reflecting improved business conditions.
- The Atlanta Fed’s GDPNow model predicts 3.3% growth for the fourth quarter, while the New York Fed’s Nowcast model projects 1.9% for the fourth quarter and 2.4% for the first quarter of 2025.
- Markets are pricing in a nearly 90% chance of a rate cut in December, which is expected to be a “hardline cut” amid concerns about persistent inflation.
DXY Technical Outlook: Bulls Eye Higher Levels Amid Cautious Optimism
The DXY is hovering near 106.00, with technical indicators offering mixed signals. The Relative Strength Index (RSI) is pointing slightly up but remains in negative territory, suggesting limited bullish momentum. The Moving Average Convergence/Divergence (MACD) indicator shows smaller red histogram bars, signaling reduced bearish pressure.
The index is approaching the 20-day Simple Moving Average (SMA), a crucial level for near-term direction. Resistance levels are seen at 106.50 and 107.00, while support remains strong between 105.50 and 106.00. Traders await Wednesday’s CPI release, which could trigger further volatility depending on the outcome of inflation.
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.
