- The US dollar shows strength as markets price in a Trump victory in November.
- Fed Easing Expectations: 150 basis points of total easing are expected over the next 12 months.
- Thursday’s retail sales will be closely watched.
The US Dollar Index (DXY), which measures the value of the USD against a basket of six other currencies, continues to rise as financial markets bet on a victory for Donald Trump in the US presidential election. This is mainly due to Trump’s plans to deregulate various sectors of the economy, according to the IG Bank analyst. The DXY has broken through a key resistance and is heading towards 104.00.
With the US economy showing mixed signals, Federal Reserve (Fed) officials remain cautious, noting that the pace of easing will depend on incoming data. Meanwhile, political tensions appear to be benefiting the USD ahead of the November elections.
Daily Market Summary: US Dollar Gains More Ground on a Quiet Wednesday
- The US economic calendar showed no notable events on Wednesday as markets await retail sales figures on Thursday.
- In case those numbers are strong, they could give another boost to the USD. For now, markets expect a slight monthly expansion.
- Fed officials Daly and Bostic remain cautious, suggesting only one or two rate cuts this year.
- Market expectations for Fed easing have eased slightly, with two year-end cuts no longer fully priced in, but still remaining above 80%.
DXY Dollar Index Technical Outlook: DXY Breaks Through Key Levels, Correction Looms
Technical analysis for the DXY index indicates continued momentum among indicators, with some showing overbought signs. The index has broken above the crucial 100-day SMA, with the next major resistance at the 200-day SMA at 103.80. As buyers push for an optimistic outlook, a potential correction could occur before the next rally.
Supports are at 103.00, 102.50 and 103.00, 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.
