US Dollar Index News: DXY Faces Steep Weekly Drop

Highlights

• U.S. Dollar sees significant weekly decline; Yen strengthens.
• Inflation data reshapes Fed rate hike expectations.
• Central banks respond to shifting global economic data.

Dollar On Track for Major Weekly Fall, Yen Strengthens

The U.S. dollar is poised for one of its most significant weekly drops against major currencies this year, while the Japanese yen has seen a notable surge, breaking below 150 per dollar. These currency shifts reflect growing concerns about the global economic outlook, with cooler-than-expected U.S. inflation data significantly impacting market expectations and the dollar’s strength.

Inflation Data Influencing Currency Markets

The U.S. inflation report released on Tuesday has led to a reassessment of the Federal Reserve’s rate hike trajectory, contributing to a 1.6% weekly decline in the dollar – its most substantial since mid-July. Concurrently, the euro has seen modest gains, following reports confirming a sharp slowdown in year-on-year inflation in the eurozone.

Yen’s Recovery Amid Global Growth Concerns

The yen, which had been weakened by the dollar’s strength, made a significant recovery, surpassing the 150 mark against the dollar for the first time in nearly two weeks. Analysts attribute the yen’s resurgence to rising global growth concerns and Japan’s relative stability in terms of trade, especially with fluctuating energy prices.

Global Data Impacting Central Bank Policies

Recent weak retail sales data from Britain and sluggish global indicators have intensified worries about the economic outlook but suggest that central banks’ efforts to combat inflation might be effective. Futures markets are now anticipating around 100 basis points of U.S. interest rate cuts next year, contributing to the dollar’s weakness.

Central Banks’ Stance and Upcoming Data

Amid these market movements, the ECB has indicated a readiness to raise interest rates if necessary, despite market expectations of rate cuts. ECB President Christine Lagarde emphasized the need for a capital markets union in the EU.

Meanwhile, upcoming U.S. housing starts data and comments from Federal Reserve policymakers are eagerly awaited by market participants.

Technical Analysis

The US Dollar Index (DXY) is currently trading at 104.141. This price is positioned slightly above its 200-day moving average of 103.617, indicating a potential long-term bullish trend. However, it is below the 50-day moving average of 105.814, suggesting short-term bearish sentiment.

The index is hovering just above the minor support level of 103.572, indicating a crucial point that could determine the direction of its next move. If it maintains above this support, there could be potential for an upward trajectory towards the minor resistance at 105.628.

Conversely, breaking below this support level might lead to a further decline towards the main support at 102.853.

Considering these factors, the market sentiment for the US Dollar Index appears cautiously bullish in the long term but bearish in the short term, reflecting mixed signals from different moving average indicators.

Trader reaction to a test of the 200-day moving average at 103.894 will determine the direction of the next major move.