- The US dollar is trading positively against almost all major G20 peers.
- Markets reposition for tighter Fed policy in 2025 following latest US jobs report
- The US Dollar Index (DXY) rises to 110.00, looking for consolidation at these higher levels.
The US Dollar Index (DXY), which tracks the value of the dollar against six major currencies, rose for the fifth day in a row and was trading around 110.00, at levels not seen since November 2022, on Monday. The move comes after markets caught up with the recent December Nonfarm Payrolls report, released on Friday, and adjusted to the new narrative that the Federal Reserve (Fed) would be more restrictive and keep rates on hold. stable for longer, with the chances of several rate cuts in 2025 diminishing.
The US economic calendar is fairly quiet ahead of the release of the Consumer Price Index (CPI) on Wednesday and Retail Sales on Thursday. At least this Monday will be a very quiet start, with only a few minor bond auctions on the agenda. Meanwhile, traders can evaluate their next moves ahead of President-elect Donald Trump’s inauguration next week.
Daily Market Summary: Countdown
- At 16:30 GMT, the US Treasury will assign a 3-month bond and another 6-month bond.
- At 19:00 GMT, the December Budget Statement will be published. The deficit is expected to narrow to $62 billion from $367 billion.
- Stocks are taking on Asia’s negative tone. In addition to Japan being closed, all other major indices are trading in the red.
- The CME FedWatch tool projects a 97.3% probability that interest rates will remain unchanged at current levels at the January meeting. The Federal Reserve (Fed) is expected to continue to rely on data with uncertainties that could influence the path of inflation once President-elect Donald Trump takes office on January 20.
- US yields are declining slightly. The benchmark 10-year bond is at 4.780%, below the new nine-month high of 4.798% seen in Asian trading on Monday.
US Dollar Index Technical Analysis: Is Everything Discounted?
The US Dollar Index (DXY) is in the final seven days before President-elect Donald Trump takes office. With the market narrative shifting toward tighter and longer Fed monetary policy, the chances of the Fed not even cutting in 2025 could be very plausible. In that case, the ramifications for the Dollar would be that the US Dollar Index would rise even further.
To the upside, the psychological barrier of 110.00 needs to hold, and consolidation must be seen above it for the rally to advance. Further up, 110.79 remains the next big upside level to reach. Once beyond there, it’s quite a stretch to 113.91, the October 2022 double top.
On the downside, the first barrier to the downside is 107.35, which has now become support. The next level that could stop any selling pressure is 106.52, with the 55-day SMA at 106.83 strengthening above this support region.
US Dollar Index: Daily Chart
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.
