- The DXY marks a positive trend, trading with gains of 0.60% near the 103.50 zone.
- US PCE numbers slowed but showed no surprises, giving the Fed reason to remain cautious.
- Investors will be keeping an eye on the November ISM Manufacturing PMI report, due out on Friday. Chairman Powell will be present.
The US Dollar (USD) is showing an upward trend, and the Dollar Index (DXY) was trading at 103.45 on Thursday. This strengthening of the USD is largely attributed to the latest US Personal Consumption Expenditure (PCE) inflation figures, which drove the USD and US yields higher.
Despite cooling inflation and a mixed labor market, Federal Reserve (Fed) officials are not ruling out further tightening of monetary policy, hinting at a moderately hawkish stance. That’s because officials are weighing the costs of doing too little and doing too much, as economic reports are giving mixed signals or there is insufficient evidence that inflation is slowing in the Fed’s eyes.
Daily Market Moves: US Dollar Gains Momentum as PCE Figures Warn Markets
- The US dollar maintained a strong position in trade on Thursday, helped by a sour mood in the markets following the US PCE inflation figures and a rally in yields.
- The annual PCE price index for October, reported by the US Bureau of Economic Analysis, came in at 3%, as expected, down from the previous rate of 3.4%.
- Also in October, the core PCE price index was forecast at 3.5%, up from the previous rate of 3.7%.
- The US Department of Labor’s weekly report revealed that initial jobless claims for the week ending November 25 stood at 218,000, slightly below the 220,000 forecast but above the previous figure. of 211,000.
- These figures seem to have lowered expectations in the markets and favor the Fed’s prudent stance, which calls for more evidence on the decline in inflation.
- On Friday, the focus will be on the release of the November Manufacturing PMI from the Institute for Supply Management (ISM). Chairman Powell will also deliver a speech.
- US bond yields saw a rise, with figures for the 2-, 5- and 10-year yields at 4.71%, 4.29% and 4.34%, respectively.
- In anticipation of the next meeting in December, CME’s FedWatch tool indicates that markets have practically priced in that there will be no rise. Furthermore, markets predict rate cuts in mid-2024.
Technical Analysis: US Dollar gains some traction, but indicators highlight bearish dominance
The Relative Strength Index (RSI), Moving Average Convergence Histogram (MACD) and Simple Moving Averages (SMA) on the daily chart together signal strong selling momentum. The position of the RSI below the median line indicates a trend that is leaning towards sellers despite showing a positive slope. The negativity of the MACD histogram further underlines the intact bearish pressures, but its bars flattened, reflecting that the bears are taking a pause.
Furthermore, the index is below the 20,100 and 200-day simple moving averages (SMA), explicit proof of the undisputed strength of the bears in the general scenario.
Support levels: 103.30, 103.15, 103.00.
Resistance Levels: 103.60 (200-day SMA), 104.00, 104.20 (100-day SMA).
US Dollar FAQ
What is the US Dollar?
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.
How do the decisions of the Federal Reserve affect the Dollar?
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.
What is Quantitative Easing and how does it influence 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.
What is quantitative tightening and how does it influence 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.
