- The US Dollar Index fell below its 20-day SMA, trading below 106.00.
- Labor market data appears to be pushing the dollar lower.
- If economic data remains weak, markets could continue to bet on a more dovish Fed.
The US Dollar (USD) is under significant selling pressure on Thursday as markets prepare for the release of the United States (US) November Non-Farm Payrolls (NFP) data on Friday. The dollar’s decline has been driven by weaker-than-expected labor market signals, including a sharp increase in Initial Jobless Claims and an increase in layoffs reported by Challenger’s November Layoff data.
The November NFP will set the pace for USD price dynamics for the coming sessions.
Daily Market Summary: Dollar Remains Weak Ahead of Friday’s NFP
- Challenger’s Layoffs report for November revealed 57,727 layoffs, up from 55,597 in October, signaling a worrying rise in job cuts.
- Weekly Initial Jobless Claims for the week ending November 29 increased to 224,000, beating expectations of 215,000 and rising from 215,000 the previous week.
- The CME FedWatch tool now suggests a 70% chance of a 25 basis point (bp) rate cut at the December 18 Federal Reserve (Fed) meeting.
- As the Fed has stated that it remains data dependent, if Friday’s NFP shows weak results, it could begin to fully consider a cut at the December meeting.
DXY Technical Outlook: Short-term weakness intensifies, 20-day SMA disappears
The US Dollar Index (DXY) broke below its 20-day Simple Moving Average (SMA), marking a critical technical setback that has weakened its near-term outlook. Indicators such as the Relative Strength Index (RSI) and the Moving Average Convergence/Divergence (MACD) are approaching negative territory, underscoring the growing bearish momentum.
Key support levels now lie at 105.50 and 105.00, while resistance may emerge at 106.50 and 107.00. With the DXY losing strength, market participants will closely watch Friday’s NFP data for signs of a reversal or further deterioration.
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.
