US Dollar (DXY) Index News: Lower as Powell Reitrates Cautious Rate-Cutting Stance to Congress

The U.S. Dollar Index (DXY) is trading lower against a basket of major currencies on Wednesday, influenced by Federal Reserve Chairman Jerome Powell’s testimony and current monetary policy views.

At 15:08 GMT, the U.S. Dollar Index is trading 103.488, down 0.282 or -0.27%.

Federal Reserve Testimony Impact

Powell’s remarks during his congressional testimony were closely monitored by investors. His comments suggested the Fed isn’t prepared to cut interest rates yet, maintaining a vigilant stance on inflation. This lack of new, more aggressive policy direction resulted in the dollar’s weakness.

Interest Rates and Inflation

A key takeaway from Powell’s testimony was the indication that the current policy rate might have reached its peak in this tightening cycle. However, he emphasized caution against lowering rates too hastily, highlighting the ongoing battle against inflation. The Fed’s commitment to achieving a sustainable move towards a 2% inflation target remains firm before considering any rate reductions.

Market Reactions and Expectations

Market participants, gauging Powell’s tone and content, adjusted their expectations regarding interest rate cuts. Previously, rate reductions were anticipated to commence as early as June, but recent statements suggest a more data-dependent approach, with no clear timeline for easing monetary policy.

Employment Data

Adding to the economic picture, ADP’s employment report showed private companies added 140,000 jobs in the latest month, slightly below expectations but still indicating steady employment growth. This data forms part of the broader context influencing the Fed’s policy decisions.

Short-Term Market Forecast

In the short term, the U.S. Dollar may continue to exhibit bearish tendencies, primarily driven by the Fed’s cautious stance on interest rate cuts and persistent focus on inflation control. The upcoming Senate Banking Committee meeting and further economic data releases will be critical for shaping future market expectations and the DXY’s trend.

Technical Analysis

DXY is trading sharply lower on Wednesday. After crossing to the weakside of the 200-day moving average at 103.730, the dollar index plunged into the 50-day moving average 103.389.

The downside momentum created by those moves is threatening to take the dollar index even lower with some traders eyeing a move into static support at 102.853.

To recap, both the long-term and intermediate-term trends are lower with further weakness likely.