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US Dollar Index News: Market Reaction to Powell’s Speech Sets DXY Tone

By:
James Hyerczyk

US Dollar Index (DXY) dips as markets await Powell's speech for Fed rate and inflation clues."

US Dollar Index (DXY)

In this article:

Highlights

  • Dollar dips slightly; Euro, Yen make modest gains.
  • Powell’s speech, Fed’s December rate decision highly anticipated.
  • Inflation data influences market’s monetary policy outlook.

Dollar Dips as Traders Eye Powell’s Speech and Inflation Data

The U.S. dollar witnessed a modest decline on Friday, while the euro experienced a slight rebound, as market participants focused on recent inflation data and anticipated a speech by Federal Reserve Chair Jerome Powell.

Market Response to Inflation Data and Treasury Yields

The U.S. dollar index fell slightly on Friday after posting its weakest monthly performance in a year in November. Meanwhile, U.S. Treasury yields remained relatively stable, with a slight decrease in the 2-year yield and a minor drop in the 10-year yield, as investors awaited Powell’s comments.

Powell’s Upcoming Remarks and Rate Decision Speculation

Jerome Powell is scheduled to speak at Spelman College, with markets keenly awaiting his insights, especially regarding the Federal Reserve’s stance on inflation and future rate decisions. The Fed’s next rate decision is set for December 13, with a high probability of rates being unchanged, as indicated by CME Group’s FedWatch tool.

Inflation Data Influences Monetary Policy Expectations

The release of the core PCE index on Thursday, the Fed’s preferred inflation measure, showed a slowdown in inflation, impacting expectations for future monetary policy. Investors are looking for clues on potential rate cuts and the Fed’s outlook on the economy, including recession risks.

Currency Movements and Broader Economic Data

Currency movements were subdued, with the euro and sterling showing modest gains against the dollar. The yen continued its upward trend against the dollar, influenced by rising expectations of a policy shift by the Bank of Japan and lower U.S. yields. Meanwhile, economic data from Europe indicated a persistent, though slightly eased, downturn in manufacturing, failing to significantly impact the euro’s performance.

Short-Term Outlook

The U.S. Dollar Index (DXY) is expected to remain under scrutiny in the short term, influenced by Federal Reserve Chair Jerome Powell’s upcoming speech and recent inflation data indicating a slowdown. Market sentiment may see further adjustments as the December 13 Fed meeting approaches, with current trends suggesting potential stability in rates and continued modest currency fluctuations.

Technical Analysis

Daily US Dollar Index (DXY)

The current daily price of the U.S. Dollar Index (DXY) at 103.517 is slightly below its previous close, indicating minor weakness. The price is marginally below the 200-day moving average of 103.582, suggesting a neutral to slightly bearish sentiment in the longer-term perspective. However, it is significantly below the 50-day moving average of 105.463, reinforcing a bearish outlook in the shorter term.

The DXY is currently trading above the minor support level of 102.853, which could provide some level of stability in the near term. It is also just below the minor resistance level of 103.572, hinting at potential challenges for upward movement. The main resistance level at 105.628 remains a distant target, reinforcing the current bearish trend.

Overall, the market sentiment for the U.S. Dollar Index appears bearish in the short term, particularly given its position relative to the 50-day moving average and the resistance levels. The proximity to the minor resistance level suggests that the index might struggle to gain upward momentum in the immediate future. ​

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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