- The DXY Dollar Index rises 0.20% on the day and consolidates above the 20-day SMA.
- Investors are awaiting the release of inflation data on Tuesday, ahead of the Fed’s decision on Wednesday.
- The US Treasury bond auction could boost yields later in the session.
The US Dollar (USD) is experiencing a strong bullish trend, trading at 104.20, driven by rising yields and cooling dovish expectations around the Federal Reserve (Fed) following the release of strong labor market numbers. last Friday. This week, the US will report Consumer Price Index (CPI) numbers for November, and the Fed meets on Wednesday.
Strong signals from the labor market and cooling inflation indicate an incoherence in the US economy. Despite these indicators, Federal Reserve officials are leaning toward a cautious stance, warning of further tightening of monetary policy. Tuesday’s inflation figures and Wednesday’s new economic and interest rate projections will be key for markets to continue shaping their expectations about the entity’s next decisions and will set the pace for the price dynamics of the US dollar.
Daily Market Summary: The Dollar Maintains Gains Awaiting November CPI and Treasury Auction
- The US Dollar is trading with gains, boosted by rising yields ahead of an eventful week.
- On Tuesday, investors will pay special attention to the headline and core Consumer Price Index (CPI) for November. The former is expected to have slowed, while the latter remains stable at 4%.
- US bond yields are following an upward trend, with rates of 4.75% for the 2-year yield, 4.26% for the 5-year yield, and 4.28% for the 10-year yield.
- At 18:00 GMT, the US Treasury will auction 10-year bonds, which could push yields higher.
- According to the CME’s FedWatch tool, market anticipation indicates that there will be no hike at Wednesday’s meeting. However, markets are pricing in less easing for 2024.
Technical Analysis: DXY bulls intervene and reclaim the 20-day SMA
On the daily chart, the Relative Strength Index (RSI) is showing a positive slope in positive territory, reflecting bullish momentum for the index. The MACD supports this bullish narrative, as the ascending green bars suggest that buying pressure is solidifying.
Considering the positioning of the DXY index relative to the 20-day, 100-day, and 200-day simple moving averages (SMA), the situation is further evidence of this buying-dominated environment. Despite being below the 100-day SMA, the index remains firm above the 20-day and 200-day SMA, demonstrating the persistence of the buying force.
Support levels: 103.70 (20-day SMA), 103.50 and 103.30.
Resistance levels: 104.50 (100-day SMA), 104.50 and 104.70.
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.
