- The DXY gave up some ground and fell to 100.60.
- The Conference Board’s consumer confidence data for September missed expectations.
- Fed speakers are fighting back against current dovish market expectations.
The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, posted some losses on Tuesday following the release of the Conference Board’s consumer confidence data. Meanwhile, Federal Reserve (Fed) officials appear to be trying to counter the market’s aggressive dovish bets.
The US economy is showing mixed signals with indications of both a slowdown and continued resilience. Economic activity appears to be moderating, but some sectors remain strong. The Fed has indicated that the path of its monetary policy will be guided by developments in economic data, suggesting that the pace of rate adjustments will depend on incoming information.
Daily Market Wrap: US Dollar Falls After CB Consumer Confidence Surprise, Fed Speakers
- US consumer confidence unexpectedly fell in September, below expectations, to 98.7.
- The market is anticipating excessive Fed easing, pricing in 75 basis points of cuts by year-end and 175-200 basis points over the next year.
- Some Fed officials, including Neel Kashkari of the Federal Reserve Bank of Minneapolis and Michelle Bowman, are fighting dovish market expectations.
- Bowman dissented from the recent 50 basis point rate cut, preferring a 25 basis point reduction and warning that a larger cut could hamper the fight against inflation.
- She highlighted ongoing inflationary risks, including supply chain disruptions and fiscal policy, and remains cautious about the strength of the labor market.
- Other Fed officials, such as Raphael Bostic of the Federal Reserve Bank of Atlanta and Austan Goolsbee of the Federal Reserve Bank of Chicago, express concerns about the labor market and support faster rate cuts.
- Markets continue to strongly support a 75 basis point easing this year.
- On the positive side for the USD, divergence in global growth favors the US Dollar, with the Eurozone, Australia and China showing signs of weakness.
- The US 10-year benchmark rate has retreated from September highs, currently trading at 3.75%.
DXY Technical Outlook: DXY maintains bearish momentum, bulls struggle
The technical analysis for the DXY index reveals a bearish bias, supported by the Relative Strength Index (RSI) around 40 and the Moving Average Convergence/Divergence (MACD) indicator displaying declining green bars. With the index below the 20-, 100- and 200-day simple moving averages (SMA), the technical outlook remains clearly bearish. A break above the 20-day SMA would improve the outlook somewhat.
Support levels are located at 100.50, 100.30 and 100.00, while resistance levels are located at 101.00, 101.30 and 101.60.
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 daily transactions. 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.
