- The DXY is trading with slight losses on Monday, hovering around the 105.85 level.
- Markets await November CPI data, which is expected to show slightly accelerating inflation.
- A Fed rate cut in December is widely anticipated but is considered hawkish.
The US Dollar Index (DXY) started the Monday session with slight losses, holding near the 105.80 level. Market participants are focusing their attention on November Consumer Price Index (CPI) data, due to be released on Wednesday and expected to show annual inflation accelerating to 2.7% from 2.6%.
Despite expectations of a December rate cut by the Federal Reserve (Fed), markets remain focused on the central bank’s cautious stance amid concerns about persistent inflation.
Daily Market Summary: DXY Steady Ahead of CPI, Fed Decision
- The DXY is trading near 106.00 as markets prepare for key data releases this week. The November Consumer Price Index (CPI) is forecast to rise 2.7% annually, up from 2.6% in October, while the core CPI is expected to remain stable at 3.3%.
- The Fed’s media silence leaves no new comments, but markets value an 85% probability of a rate cut in December.
- The Atlanta Fed’s GDPNow model projects 3.3% SAAR growth for the fourth quarter, while the New York Fed Nowcast shows 1.9% for the fourth quarter and 2.4% for the first quarter.
- Last week’s employment data showed solid results with November Nonfarm Payrolls at 227,000, well above expectations of 200,000. Consumer Sentiment for December rose to 74, while inflation expectations softened slightly with the 5-year outlook falling to 3.1%.
DXY Technical Outlook: Bulls Cautiously Hold 106.00 Level Amid Mixed Signals
The DXY continues to hover around the 106.00 level, showing slight strength despite lingering inflation concerns and a dovish Fed. Key technical indicators remain mixed. The Relative Strength Index (RSI) is declining, approaching its neutral level of 50, suggesting weakening bullish momentum.
Meanwhile, the Moving Average Convergence/Divergence (MACD) indicator displays red histogram bars, signaling bearish pressure as the short-term moving averages lag the long-term ones.
Immediate resistance is seen at 106.50, with further obstacles near 107.00. To the downside, support is firm between 105.50 and 106.00. Wednesday’s CPI data will likely be the key driver for the index’s next significant move, with a surprise that could trigger volatility across the board.
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.
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