- The DXY showed an uptrend towards 106.00 on Friday.
- The November NFP report showed a huge improvement in job creation.
- December sentiment data was strong.
The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, gained towards 106.00 on Friday, driven by several key factors. The US dollar remained flat following the release of Non-Farm Payrolls (NFP) data, as markets anticipated a possible rate cut in December by the Federal Reserve (Fed).
The DXY found support at 105.50 and advanced towards 106.00 amid this news. As a result of the anticipation of a rate cut, a dovish stance from the Fed would generally cause a drop in the DXY. However, the market is leading to strength in the US Dollar despite this news.
Daily Market Summary: US Dollar Sees Some Gains After NFP Data
- The US Dollar Index advanced towards 106.00 as several key factors influenced its movement.
- The NFP soared by 227,000 in November, far exceeding market expectations of 200,000.
- The unemployment rate saw a slight increase to 4.2% in November.
- Monthly average hourly earnings recorded a steady increase of 0.4%, matching the previous month’s reading.
- Consumer sentiment rose to 74 in December, beating market projections.
- The University of Michigan’s 5-year inflation expectations rate decreased to 3.1%.
DXY Technical Outlook: Bulls struggle, hold 106.00 level
The DXY stopped its decline and gained ground today, indicating resilience. This move occurs despite profit-taking activity. The index is currently aiming to reclaim its 20-day SMA, and as long as it remains below this level, it could exacerbate its near-term difficulties.
On the other hand, the bullish trend for DXY remains robust, with resistance points located at 106.50 and 107.00. Support is anticipated within 105.50 to 106.00.
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.
