- US Dollar Finds Buyers as Markets Price Less Cuts in 2024.
- Thursday’s retail sales will be key for market bets.
- Strong US data later in the week could continue to push the DXY higher.
The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, continues to rise as markets are abandoning their hopes for two cuts by the Federal Reserve (Fed) this year.
The US economy is showing mixed signals, exhibiting both signs of slowdown and resilience. The Fed has indicated that it will monitor incoming data to adjust the pace of its monetary easing policy accordingly.
Daily Market Summary: US Dollar Gains More Ground on a Quiet Monday
- Fed easing expectations are tempered by strong employment and CPI data, with fewer rate cuts priced in.
- Fed speakers maintain a cautious stance on rate cuts and remain dependent on data.
- The headline CPI for September rose as expected last week, while the core CPI was slightly higher than anticipated.
- The supercore rate was unchanged at 4.3% year-on-year, indicating persistent pressure on prices.
- Thursday’s US retail sales data is projected to show continued strength in consumer spending, supported by favorable economic conditions.
- Thursday’s business inventories and industrial production reports will provide insight into overall economic activity.
DXY Technical Outlook: DXY Maintains Bullish Momentum, Approaching Overbought Conditions
The DXY index maintains bullish momentum with indicators suggesting overbought conditions near the crucial 100-day SMA. That said, the Relative Strength Index (RSI) and the Moving Average Convergence/Divergence Indicator (MACD) are approaching overbought territory, signaling a possible pullback.
Supports are at 103.00, 102.50 and 102.30, while resistances are at 103.30, 103.50 and 104.00.
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.
