US Dollar Returns to Number One After Fed Interest Rate Cut Fails to Trigger Expected Shock in Markets

• US dollar a touch softer after volatile ride amid Fed rate decision.
• Traders are still not convinced about the US Dollar after Chairman Powell’s comments.
• The US dollar index is trading back in the tight bandwidth range after a very brief breakout.

The US dollar (USD) is trading slightly weaker at levels it was at ahead of the US Federal Reserve (Fed) meeting during the European trading session on Thursday. Traders quickly pared early losses on Wednesday after Fed Chairman Jerome Powell said a 50 basis point (bps) rate cut would not be the new normal, although the greenback retreated further this Thursday. Going forward, it appears that economic data ahead of each rate decision will determine the size of the cut, if any, an assumption that has been perceived as quite demanding by markets.

On the economic data front, traders can already get their hands dirty with weekly jobless claims, especially as Powell reiterated that the labor market is important to the Fed’s dual mandate. The Philadelphia Fed manufacturing index will also be released, giving markets more insight into how the manufacturing side of the economy is holding up.

Daily Market Summary: Jobless claimants aren’t moving the needle this Thursday

• Quick summary of the Fed’s overnight rate decision: A 50 basis point rate cut was given, with another 50 basis point cut expected for the rest of 2024. Fed Chairman Powell reiterated that the 50 basis point cuts basis points will not be the new normal and that the Fed will remain dependent on the data to gauge the size of interest rate cuts appropriate for the next meeting.
• The Bank of England (BoE) kept its interest rate unchanged at 5% by a split vote of 8 to 1, with one member calling for a rate cut. Governor Andrew Bailey said the BoE would cut rates gradually over time.
• At 12:30 GMT, weekly jobless claims are due. Initial claims should remain steady at 230,000. Continuing claims were previously at 1.85 million, with no forecast available for this week’s number.
• Amidst this plethora of unemployment data will come the Philadelphia Fed Manufacturing Survey for September. A reading of -1 is expected, which is above August’s -7.
• At 14:00 GMT, existing home sales for August are expected to have fallen slightly to 3.90 million units from 3.95 million in July.
• Equity markets are having a field day amid the Fed’s rate decision. In Japan, both the Nikkei and Topix closed more than 2 percent higher. European indices follow suit with more than 1% at the green term, and US futures see the Nasdaq surpass by 2%, while the S&P 500 and Dow Jones follow with almost 1.5% positive.
• The CME Fedwatch tool shows a 65.0% chance of a 25 basis point interest rate cut at the Fed’s next meeting on November 7. The remaining 35.0% represents another rate cut of 50 basis points.
• The benchmark U.S. 10-year yield is trading at 3.71%, higher since Wednesday and further from a 15-month low of 3.60%.

Technical Analysis of the US Dollar Index: It was already quoted in the

The US Dollar Index (DXY) is back in its range after a very brief excursion into lower territory, outside of that bandwidth that drives the DXY’s moves in recent weeks. With this Fed rate cut and projections for this year, a gradual easing of the greenback should occur. Expect pressure to build again at the lower end of the bandwidth, which could be broken if economic data deteriorates and leads the Fed to another 50 basis point rate cut in November.

The recent range high remains at 101.90. Above, the index could reach 103.18, with the 55-day simple moving average (SMA) at 102.74. The next upside leg is very cloudy, with the 200-day SMA and 100-day SMA at 103.79, just ahead of the high round of 104.00.

On the downside, 100.62 (Dec 28, 2023 low) was breached overnight, although it was unable to close below it daily. If it does, the July 14, 2023 low at 99.58 will be the next level to watch. If this level breaks, early 2023 levels approach 97.73.

US Dollar Index: Daily Chart