US Dollar Index News: DXY Plunges to 4-Month Low as Fed Rate Hike Cycle Ends

Highlights

• US dollar hits four-month low following Fed’s policy shift.
• Markets expect Fed rate cut in March.
• Bank of England maintains rate at 5.25% amid inflation concerns.
• BOJ meeting eyed for further policy adjustments.

Dollar Dips Post-Fed Announcement

The US dollar hit a four-month low against a basket of major currencies on Thursday, following the Federal Reserve’s signal of an end to the interest-rate hike cycle, hinting at reduced borrowing costs in 2024.

Mixed Central Bank Responses in Europe

European currencies reacted variably to their respective central bank announcements. The Norwegian crown rose post-rate hike, while the Swiss franc remained steady after the SNB held rates. The Bank of England maintained its rate at 5.25%, with a split vote among its members.

Inflation and Monetary Policy in the UK

The UK grapples with inflation at 4.6% and wage growth over 7%, challenging the Bank of England’s efforts to sustainably bring inflation down to its 2% target. The MPC acknowledges persistently high inflation indicators but notes tighter policy’s impact on the labor market.

Global Currency Movements and Market Expectations

The US dollar index dropped significantly, while markets anticipate a potential Fed rate cut in March. In Europe, the SNB’s steady rate contrasts with Norges Bank’s unexpected hike. The ECB’s upcoming decision is also highly anticipated.

Yen Strengthens as Traders Adjust Positions

The yen surged against the dollar, reaching its highest since late July. Traders adjusting their positions post-FOMC meeting, and Japanese exporters increasing hedge ratios contributed to this rise. The BOJ’s upcoming meeting is eyed for potential policy tweaks.

Short-Term Forecast for the US Dollar Index

In the short term, the US Dollar Index may continue to face downward pressure. The dovish turn by the Federal Reserve and market expectations of a rate cut in March could further weaken the dollar. However, currency markets remain sensitive to other central banks’ decisions and global economic indicators.

Technical Analysis

The US Dollar Index (DXY) currently shows weakening market sentiment. At 102.446, it is below both the 200-day and 50-day moving averages, by approximately 1.08 and 2.50 points respectively, indicating a bearish trend from a longer-term perspective.

Overall, the current position of DXY shows bearish tendencies, especially in the context of the moving averages.​