- The US dollar continues to struggle as buyers take a pause.
- The US PCE price index fell to 2.1% annually in September, while core inflation remains stable at 2.7%.
- US jobless claims fall to 216,000, compared to market expectations for an increase to 230,000.
The US Dollar Index (DXY) is trading softer on Thursday despite persistent inflation in the United States, as measured by the Personal Consumption Expenditure (PCE) Price Index. Additionally, the number of initial jobless claims decreased more than expected for the last week of October, but the Dollar continues to struggle for traction in the second half of the week.
The DXY index has shown a mixed path amid mixed economic data. The strong ADP employment change numbers and upwardly revised ADP September data were offset by the downward revision of third quarter GDP growth. The upcoming Non-Farm Payrolls (NFP) report on Friday could significantly impact the direction of the DXY.
Daily Market Summary: US Dollar Weakens on Profit-Taking Despite Strong Data
- The US PCE price index rose moderately 2.1% year-on-year in September, down from 2.2% previously but below the consensus of 2.2%.
- The core PCE, more relevant to the Fed, was stable at 2.7%, compared to market expectations of a fall to 2.6%.
- Despite market consensus expecting an increase to 230,000, initial jobless claims fell to 216,000 in the week of October 25.
- Economists predict that the NFP will reach 113,000 new payrolls in October, significantly below the 254,000 in September. The unemployment rate is anticipated to remain unchanged at 4.1%.
- Market participants will closely monitor employment data for information on the Fed’s interest rate decision-making.
- For now, markets expect a 25 basis point cut at next week’s Federal Open Market Committee meeting.
DXY Technical Outlook: DXY Index Consolidates Near 104.50 Support
The DXY index continues to consolidate, possibly preparing to retest the 200-day SMA support at 103.50. The Relative Strength Index (RSI) remains elevated near overbought territory but is trending downward. The Moving Average Convergence/Divergence (MACD) indicator is generating smaller green bars, indicating weakening momentum.
Supports: 104.50, 104.30, 104.00Resistances: 104.70, 104.90, 105.00
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.
