US dollar tumbles on a quiet Tuesday

Vaseline3 days ago

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The US dollar index remains neutral on Tuesday, near the key 103.00 level.
Fed officials remain cautious about easing policy too much, too soon.
Thursday’s CPI figures will be key to DXY movement.

The US dollar index (DXY), which measures the USD against a basket of six currencies, is flat on Tuesday. Despite the initial rally, DXY has settled around 102.50 and is awaiting further direction.

Economic indicators suggest mixed signals for the US economy. While some data points to a slowdown, other numbers point to continued strength. The Federal Reserve (Fed) stressed that its approach to easing monetary policy will be guided by incoming economic data, suggesting a cautious stance that will depend on the evolving economic landscape.

Daily Market Moments: US Dollar steady as Fed bets adjust, CPI looms

Fed officials remain cautious, stressing the risks of premature easing and indicating that further gradual rate cuts may be in order.
The probability of a 50bps cut in November or December is now zero, and a 25bps cut next month is only 90% priced.
Despite solid economic data, the market still anticipates 125 bps of total easing over the next 12 months.
Thursday’s consumer price index (CPI) data could shake up USD dynamics and the next Fed bets.

DXY Technical Outlook: DXY has paused on an upward momentum, resistance is limiting on the upside

Technical analysis of the DXY index indicates a temporary pause in the upward momentum after a recent run of gains. The Relative Strength Index (RSI) and MACD (Moving Average Convergence Divergence) indicators remain firmly in positive territory, suggesting the potential for further gains. While the near-term outlook has improved, the overall trend remains bearish for the USD.

Key support levels are at 102.30, 102.00 and 101.80, while resistance levels are at 103.00, 103.50 and 104.00.

Frequently asked questions about US dollars

The US 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 found in circulation alongside local banknotes. It is the world’s most heavily traded currency, accounting for more than 88% of total global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, as of 2022. After World War II world, the USD has taken over from the British pound as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement in 1971, when the gold standard disappeared.

The most important factor influencing the value of the US dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability (inflation control) and to promote full employment. Its main tool for achieving these two objectives is the adjustment of interest rates. When prices rise too fast and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the value of the USD. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on interest rates.

In extreme situations, the Federal Reserve can also print more dollars and engage in quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (for fear of default). It is a last resort when simply lowering interest rates is unlikely to achieve the desired result. It was the Fed’s preferred weapon to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy US government bonds, mainly from financial institutions . QE usually leads to a weaker US dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing bonds it holds in new purchases. It is usually positive for the US dollar.

Vaseline3 days ago

0 3 minutes read