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US Dollar Index News: DXY Steady Amid Sterling’s Slide, Fed Anticipation

By:
James Hyerczyk
Published: Sep 18, 2023, 12:24 GMT+00:00

With multiple central bank meetings on the horizon, the DXY displays an uncharacteristic calm, setting the stage for cautious anticipation.

US Dollar Index (DXY)

Highlights

  • U.S. Dollar (DXY) maintains stability ahead of Wednesday’s Fed decision. 
  • Sterling drops 6% against the dollar since July, reflecting UK economic and labor uncertainties.
  • European Central Bank’s rate ascends to 4%, hinting at a culmination in its series of hikes.
  • BOJ Governor Kazuo Ueda’s remarks ignite speculation on monetary policy adjustments.

Overview

Global currency markets led by the U.S. Dollar (DXY) showed relative calmness, with a notable exception in sterling, as multiple central bank meetings loomed and a Japanese holiday kept traders on the sidelines.

Major Currency Dynamics

While the U.S. dollar index slightly dipped to 105.24, its broad prospects remain supported, thanks to expected differences in economic growth trajectories and yield performances. Sterling, reflecting concerns over the UK’s economic and labor market slowdown, has depreciated nearly 6% against the dollar since mid-July. In contrast, the euro declined over 5% given a similar slowdown in the Eurozone. The European Central Bank’s recent rate hike to 4%, possibly its last, further adds to the euro’s pressure.

U.S. and Japanese Outlook

U.S. Treasury yields, influenced by increased government spending and a Fed keen on managing above-target inflation, have seen a climb. Significantly, the two-year yield surpassed the 5% mark this month. Additionally, recent U.S. retail sales figures have diminished recession risks.

Market participants are, however, not anticipating a Fed rate hike in its upcoming meeting. Concurrently, in Asia, the Bank of Japan’s policy meeting emerges as the focal point after Governor Kazuo Ueda hinted at a potential shift from the bank’s current ultra-loose monetary policy.

Despite this, given the recent downturn in Japanese wages and softer inflation expectations, any immediate policy tightening from the BOJ seems unlikely.

European Central Bank Movements

The euro remains steady at $1.067, but its recent decline of more than 5% signals a slowing Eurozone economy. Moreover, despite the European Central Bank raising interest rates to 4%, it signaled that this might be the concluding hike for the foreseeable future.

Meanwhile, the Bank of England, amid concerns of a slowing economy, is expected to increase its interest rates again. This anticipated move comes as markets sense a potential pause in its aggressive tightening cycle.

Short-Term Forecast

Overall, with central bank decisions poised to influence the DXY’s market direction and oil prices adding another layer of complexity, the short-term market sentiment leans towards cautious anticipation. The upcoming central bank meetings, especially those of the U.S. Federal Reserve, Bank of England, and Bank of Japan, are expected to shape the market trajectory. The consensus indicates a bullish trend for the dollar, primarily if the BOJ retains a dovish stance in its policy meeting.

Technical Analysis

4-Hour US Dollar Index (DXY)

The US Dollar Index (DXY) currently trades at 105.263, a slight dip from its previous 4-hour close of 105.285. This position is notably above its 200-4H moving average of 103.716, indicating a bullish trend. Further reinforcing this bullish sentiment, DXY remains above the 50-4H moving average of 104.919. The momentum, as measured by the 14-4H RSI, stands at a moderately strong 60.93, inching closer to the overbought territory.

When mapping the current price against established support and resistance zones, DXY comfortably sits above its main support range of 104.699 to 104.403 and is edging closer to its primary resistance bracket of 105.095 to 105.883. Based on this data, the prevailing market sentiment for DXY leans towards the bullish side.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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