US Dollar Index News: DXY Firms After Fed Signals Continued Rate Rigidity

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Published: Nov 22, 2023, 14:15 GMT+00:00

Fed minutes boost US Dollar Index (DXY) from 2½-month low, influencing markets with a 27% chance of March rate cut, as global currencies vary.

Highlights

Dollar index slightly up, despite November’s potential low.
Fed’s cautious rate approach impacts market predictions.
Global currencies show varied response to dollar’s rise.

Dollar Index Rebounds Amid Fed’s Rate Hike Stance

The U.S. dollar index experienced a rebound from its recent 2½-month low following the release of the Federal Reserve’s latest meeting minutes. The minutes revealed a consensus for maintaining restrictive interest rates, suggesting an end to the aggressive rate-hike cycle.

This development led to a slight increase in the dollar index, which rose by 0.1% to 103.72. Despite this uptick, the index is tracking a 2.6% decline for November, potentially marking its worst monthly performance in a year.

Market Reactions and FedWatch Tool Insights

The Fed’s cautious stance on future rate hikes aligns with their objective to control inflation. Markets are now largely anticipating the Fed to maintain rates in their upcoming December meeting. Interestingly, CME’s FedWatch Tool indicates about a 27% probability of a rate cut as early as March. Analysts also note a trend of investors withdrawing funds before the U.S. Thanksgiving holiday, contributing to the market movements.

Global Currency Dynamics

While the dollar’s recovery is notable, other major currencies exhibited mixed responses. The euro peaked at its highest against the dollar since mid-August, while the sterling remained steady, close to a recent two-month high.

The finance minister’s Autumn Statement in Britain, expected to announce tax cuts, may further impact sterling’s performance. The Japanese yen, after reaching a two-month high against the dollar, showed a slight decrease, though speculation about the Bank of Japan exiting negative interest rates next year could offer support to the yen.

Short-Term Forecast

The current dynamics suggest a cautiously bullish outlook for the U.S. dollar. High U.S. Treasury yields, despite a recent drop from October highs, continue to support the dollar. However, the anticipation of a potential shift in the Fed’s rate policy and global economic factors could introduce volatility in the coming months. Analysts anticipate the dollar to navigate through these mixed signals with moderate gains, provided the Fed maintains its current policy stance.

Technical Analysis

Daily US Dollar Index (DXY)

The US Dollar Index (DXY) currently stands at 103.937, positioning it above the 200-day moving average of 103.618 but below the 50-day average of 105.751. This placement indicates a neutral to slightly bearish short-term sentiment, as the index is trading in the lower range of its recent movement but still maintains support above the longer-term average.

The proximity to the minor support level of 103.572 suggests the index is at a critical juncture; holding above this level could signal stability, whereas a break below might indicate a bearish trend.

The current position relative to the main resistance at 106.904 and minor resistance at 105.628 further reinforces this cautious outlook.

The market sentiment for the US Dollar Index, therefore, leans towards a cautious or neutral stance, with a slight bearish inclination due to its position under the 50-day moving average and close to minor support levels.

About the Author

James Hyerczykauthor

James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.

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