US Dollar (DXY) Index News: Greenback Shows Resilience Amid Fed’s Steady Rates

James Hyerczyk
Published: May 2, 2024, 14:21 GMT+00:00

Key Points:

  • DXY recovers as Fed retains current interest rate level.
  • Treasury yields increase; labor costs exceed forecasts.
  • Fed to slow down quantitative tightening from June.
US Dollar Index (DXY)

U.S. Dollar Index Rebounds

The U.S. Dollar Index (DXY) is showing signs of recovery against a basket of major currencies this Friday, following a significant dip post-Wednesday’s Federal Reserve announcement. The Fed’s decision to maintain interest rates sparked mixed reactions due to Chair Jerome Powell’s remarks on the ongoing economic adjustments and inflation concerns.

At 14:10 GMT, the U.S. Dollar Index is trading 105.882, up 0.251 or +0.24%.

Federal Reserve’s Influence

During this week’s Federal Reserve meeting, interest rates were left unchanged, a decision influenced by the need to tackle persistent inflation despite economic pressures. Powell emphasized the central bank’s readiness to adjust policies swiftly if needed, although he suggested that rate hikes might not be imminent due to the current economic backdrop. This stance seems to reflect a more measured approach to monetary tightening, which initially placed the dollar in a weaker position.

Treasuries and Labor Costs

Following the Fed’s announcements, U.S. Treasury yields saw a modest increase. The yield on the 10-year Treasury note rose by over 5 basis points to 4.649%, while the 2-year yield edged up slightly to 4.95%. Meanwhile, the Labor Department reported a 4.7% increase in unit labor costs for the first quarter, surpassing expectations and hinting at underlying economic strength.

Quantitative Tightening and Inflation Outlook

Further, the Fed announced a slowdown in quantitative tightening, planning to reduce the pace at which it allows the proceeds from maturing Treasury bonds to roll off its balance sheet starting June. This move is aimed at adjusting the monetary tightening process more subtly. Powell also reiterated that inflation remains uncomfortably high, with the path to reducing it to the Fed’s 2% target filled with uncertainties.

Market Forecast

Looking ahead, traders are eyeing the April jobs report, with expectations set for a robust addition of 240,000 nonfarm jobs. Given the current economic indicators and the Fed’s strategic positioning, the DXY might experience bullish momentum in the short term, supported by solid labor market data and a gradual tightening of monetary policy. However, the predominant outlook remains cautiously optimistic as inflation and policy responses continue to pose risks to currency stability.

Technical Analysis

Daily US Dollar Index (DXY)

The U.S. Dollar Index is higher on Thursday, but continues to consolidate as traders await the next catalyst. The index is trading inside yesterday’s wide range, whichs suggests investor indecision and impending volatility.

The minor trend is down. A trade through 105.414 will signal a resumption of the downtrend. If this move creates enough downside momentum then look for a possible acceleration into the support base formed by the 50-day moving average at 104.529 and the 200-day moving average at 104.179.

On the upside, a trade through 106.517 will reaffirm the uptrend. This could trigger a surge into the double-top at 107.113 to 104.438.

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.

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