US Dollar (DXY) Index News: Greenback Regains Ground on Fed Rate Cut Forecast

James Hyerczyk
Updated: Jun 13, 2024, 23:34 GMT+00:00

Key Points:

  • The dollar recovers as the Fed forecasts a single rate cut this year. However, softer-than-expected inflation data limits the extent of these gains.
  • U.S. consumer prices remain flat in May, defying expectations of a rise. The producer price index falls by 0.2%, reversing the previous month’s increase.
  • Yen is under significant pressure ahead of the Bank of Japan meeting. Traders brace for volatility as they anticipate potential policy announcements.
US Dollar Index (DXY)

Dollar Recovers Amid Fed Rate Cut Projection

The U.S. dollar regained some ground on Thursday following the Federal Reserve’s indication of a single rate cut this year. Despite the gains, softer-than-expected inflation data limited the dollar’s rise. The market remained cautious after the release of the latest U.S. inflation figures, which showed minimal price increases.

At 13:34 GMT, the U.S. Dollar Index is trading 103.915, up 0.110 or +0.11%.

Inflation and Producer Prices

On Wednesday, the U.S. consumer price index (CPI) data revealed that consumer prices were unchanged in May, contrary to the expected 0.1% increase. This led to a temporary 1% drop in the dollar, which settled at a 0.5% loss by the end of the day—its largest in two weeks. The annual inflation rate stood at 3.4%, still above the Federal Reserve’s 2% target.

Additionally, the producer price index (PPI) reported a 0.2% decrease in May, against the anticipated 0.1% rise. This drop reversed the 0.5% increase seen in April. Excluding food, energy, and trade services, the PPI remained unchanged, compared to expectations of a 0.3% increase. On a yearly basis, the all-items PPI rose 2.2%.

Market Reaction and Fed Policy

The Federal Reserve maintained its benchmark borrowing rate between 5.25% and 5.5%, with projections now indicating just one rate cut this year, down from three previously anticipated. Despite the Fed’s outlook, market participants continued to price in almost two 25-basis-point rate cuts for 2024, supporting a partial recovery in the dollar.

Global Currency Movements

The yen continued to face significant pressure ahead of the Bank of Japan’s meeting, with traders bracing for potential volatility. The euro experienced its largest one-day rally of 2024 following the U.S. inflation report, reflecting increased political uncertainty in France. The euro remained steady at $1.08 after a 0.64% increase on Wednesday. Meanwhile, sterling held flat at $1.2795, maintaining gains from the previous session.

Market Forecast

Given the recent data, the U.S. Dollar Index (DXY) is expected to experience cautious trading. The Fed’s tempered rate cut projections and ongoing inflation concerns are likely to limit significant upward movement in the near term. However, persistent economic uncertainties and central bank policies will continue to influence the dollar’s trend, potentially leading to moderate gains as traders digest new economic indicators.

Technical Analysis

Daily US Dollar Index (DXY)

The U.S. Dollar Index is edging higher on Thursday after yesterday’s plunge. Despite the volatility, the index could become rangebound, not only because of the mixed fundamental picture, but also because it’s trapped inside a pair of important moving averages.

On the upside, resistance is the 50-day moving average at 105.120. On the downside, support is the 200-day moving average at 104.461.

Essentially, the intermediate trend is down, but the lower-term trend is edging higher.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.