US dollar flattens, set for third straight week of losses after big Fed rate cut

• The US dollar is strengthening on Friday after further weakening on Thursday.
• Traders traded the US dollar amid decisions by the Bank of Japan and the Bank of England to keep rates on hold.
• The U.S. dollar index is falling outside narrow bandwidth, a sign that it could decline next week.

The US dollar (USD) is trading broadly steady on Friday after Thursday’s sharp decline as traders reassessed the greenback after the US Federal Reserve (Fed) joined the European Central Bank (ECB) and several others in starting its tapering cycle of the interest rate. A very different picture comes from the Bank of England (BoE) and the Bank of Japan (BoJ), which decided to keep interest rates steady, causing the US dollar to struggle against the British pound (GBP) and the Japanese yen (JPY). .

As far as economic data goes, the US economic calendar is pretty empty, which is ideal for traders to let the dust settle after a volatile week. Next week, a lot of US data is due to be released. Highlights include final US Gross Domestic Product (GDP) data for Q2 and the Price Index for Personal Consumption Expenditures (PCE), the Fed’s preferred inflation gauge.

Daily Market Reasons: You Can’t Always Get What You Want

• The Bank of Japan (BoJ) kept its interest rate steady at 0.25%. BoJ Governor Kazuo Ueda noted that inflation came in slightly weaker than expected, that the BoJ is closely watching economic data and is ready to raise at any time when necessary.
• Federal Reserve Bank of Philadelphia President Patrick Harker delivers a speech titled “The Federal Reserve: It’s More Than Just Interest Rates” at the Freeman School of Business at Tulane University in New Orleans at around 18:00 GMT.
• Equity markets are experiencing some profit-taking after the steep ads that followed the Fed’s rate decision. Both European stocks and US futures are in the red. However, losses are rather limited, at most 0.5% on average.
• The CME Fedwatch tool shows a 59.3% chance of a 25 basis point rate cut at the Fed’s next meeting on November 7. The remaining 40.7% is priced into another 50 basis point rate cut.
• The benchmark US 10-year yield is trading at 3.71%, rather in the middle of this week’s range between 3.60% and 3.76%.

US Dollar Index Technical Analysis: Where Do We Close This Week?

The US Dollar Index (DXY) is in a precarious situation. A weekly close below this line in the sand of 100.62 could indicate further weakness ahead. A further depreciation could occur next week if US data eases further, opening the door to another major rate cut in November.

The recent range high remains at 101.90, with DXY still likely to recover above 100.62 first. Above, the index could reach 103.18, with the 55-day simple moving average (SMA) at 102.66 on the way. The next upside leg is very cloudy, with the 200-day SMA and 100-day SMA at 103.76, just ahead of the round high of 104.00.

On the downside, 100.62 (December 28, 2023 low) is broken again and could indicate more weakness ahead. If this happens next week, 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