US Dollar Index News: DXY Underpinned by Fed’s Rate Decision; Euro, Yen Feel Heat

Highlights

• U.S. Dollar Index records its 10th consecutive weekly rise, showcasing the strength of the greenback.
• Federal Reserve’s hawkish tone and U.S. growth resilience signal bullishness for the dollar, amidst slower Euro growth.
• Hints from the Fed suggest possible rate hikes this year, while also indicating the likelihood of sustained high rates.
• Potential U.S. government shutdown emerges as a major concern, with potential GDP impacts for Q4 and constraints on the Fed’s data access.

U.S. Dollar and Interest Rates

The U.S. Dollar Index, marking its 10th weekly rise, reflects the Federal Reserve’s decision to maintain interest rates between 5.25% and 5.5%. This stand by the Fed has elevated yields on 10-year U.S. Treasuries to an impressive 4.47%, a rate unseen since 2007. The hawkish tone set by the Federal Reserve, combined with strong U.S. growth resilience and anticipated slower growth in the Euro area, paints a bullish picture for the dollar.

U.S. Treasury and Market Reaction

After the Fed’s recent policy meeting, U.S. Treasury yields showed minimal change. The 10-year Treasury stands at 4.474%, with the 2-year Treasury at 5.118%. The central bank not only hinted at a potential rate hike this year but also indicated rates will likely remain high for an extended period. The Fed’s stance stems from inflationary pressures that still need further monitoring.

Government Shutdown Concerns

The potential government shutdown has surfaced as a significant concern after the House went into recess without passing the essential funding bill. Such a shutdown could dent the U.S. GDP for Q4 and impact the monetary policy, as the Federal Reserve might face limitations in accessing crucial economic data.

Global Currencies and Central Banks

Both the yen and the euro experienced pressure. The Bank of Japan’s decision to keep rates in negative territory, combined with weak economic data from France, impacted these currencies. Meanwhile, the euro zone faces potential contraction due to the ripple effects of central banks’ prolonged interest rate hikes. On the other hand, the Bank of Japan remains dedicated to economic support until a stable 2% inflation is achievable, leading to a drop in the yen against the dollar.

Forecast

With the Federal Reserve’s hawkish stance, potential U.S. government shutdown, and international central bank activities, investors should remain vigilant. The U.S. Dollar is likely to stay strong, but looming uncertainties in the global landscape could influence market dynamics. Given the current economic indicators, the short-term market outlook leans bullish for the U.S. dollar.

The current 4-hour price of the US Dollar Index (DXY) at 105.516 is situated above the 200-4H moving average of 104.082, which signifies a bullish momentum. However, this price is also above the 50-4H moving average of 105.132, reinforcing the bullish sentiment. The 14-4H RSI, positioned at 56.78, indicates moderately strengthened momentum that is veering closer to an overbought territory but hasn’t reached it yet.

DXY is trading between its main support region of 103.273 to 103.013 and the main resistance zone of 105.095 to 105.883. Given these parameters, the current market sentiment for DXY is decidedly bullish.