US Dollar Index News: DXY Holding Steady Post-GDP, Watching for Lagarde’s Impact

Key Points

• Dollar remains stable following strong GDP and ECB rate news.
• U.S. economy’s 3.3% Q4 growth exceeds predictions.
• Market anticipates insights from upcoming Federal Reserve meeting.

US Dollar Steady to Lower Post-GDP Report and ECB Decision

In the currency markets, the U.S. dollar has held its ground but remains on a slightly lower path since the release of the robust US GDP report and the European Central Bank’s (ECB) interest rate decision. Traders are also eagerly awaiting ECB President Christine Lagarde’s press conference for further insights.

Dollar Index Resilient

The dollar index, which measures the U.S. currency against a basket of major rivals, has shown resilience but is currently trading at a level slightly lower than earlier in the week. The index reached a six-week high of 103.82 earlier, but it has since retraced slightly. Traders are exercising caution and consolidating their positions ahead of the Federal Reserve’s policy meeting scheduled for January 30-31.

At 13:56 GMT, the U.S. Dollar Index (DXY) is trading 103.259, up 0.011 or +0.01%.

Impressive GDP Growth

The highlight of the day is the release of the GDP report for the fourth quarter of 2023. The data revealed that the U.S. economy performed exceptionally well, growing at an annualized rate of 3.3%. This figure surpassed earlier expectations, defying concerns of an impending recession. The robust GDP report underscores the resilience and strength of the U.S. economy.

Key Factors Behind Growth

Several factors contributed to the significant growth in the U.S. economy. Consumer spending played a pivotal role, with personal consumption expenditures increasing by 2.8% for the quarter. State and local government spending also made substantial contributions, rising by 3.7%. Federal government expenditures saw a 2.5% increase, while gross private domestic investment rose by 2.1%. These elements combined to fuel a strong quarter.

Inflation and the ECB

Simultaneously, the European Central Bank made its interest rate decision, opting to maintain unchanged rates. The central bank reasserted its commitment to keeping rates high for a “sufficiently long duration” to attain its inflation target. While acknowledging concerns about a sluggish euro area economy and financial stability, the ECB is cautious about prematurely reducing rates.

Short-Term Market Forecast

As we look ahead, traders in the currency markets remain vigilant. The U.S. dollar is expected to continue experiencing some fluctuations, influenced by economic data releases and central bank decisions. The focus now shifts to Friday’s PCE Index report on consumer inflation, the Fed’s favorite indicator. The upcoming Federal Reserve policy meeting on January 30-31 will be a critical event to watch, as it may provide further guidance on the dollar’s short-term trend.

Technical Analysis

The U.S. Dollar Index is drifting higher on Thursday, but remains constrained by 200-day moving average resistance at 103.490 and 50-day moving average support at 102.837. This particular set-up often leads to a volatile breakout.

In addition to the moving averages, resistance can be found at 103.572 and support a 102.853. These levels form resistance and support clusters with the respective moving averages.

The way of least resistance appears to be to the upside. The daily chart indicates a sustained move over 103.572 is likely to trigger a breakout to the upside with 105.628 the next likely target. Conversely, a trade through support could also launch a volatile break, but losses will be limited by support at 101.950.