- DXY Index rose by 0.20% and consolidated above the 20-day SMA.
- Investors await the release of inflation data on Tuesday, ahead of the Fed’s decision on Wednesday.
The US Dollar (USD) is currently witnessing a strong uptrend, trading at 104.20, bolstered by rising yields and the cooling of dovish bets on the Federal Reserve (Fed) after the release of strong labor market figures last Friday. This week, the US will report November’s Consumer Price Index (CPI) figures, and the Fed meets on Wednesday.
Strong labor market signals and cooling inflation indicate inconsistency in the US economy. Despite these indicators, Federal Reserve officials are leaning toward a cautious stance, warning of further policy tightening. Tuesday’s inflation figures and fresh economic and interest rate projections on Wednesday will be key for markets to continue modeling their expectations of the bank’s next decisions and will set the pace of US Dollar price dynamics.
Daily Market Movers: US Dollar holds gains, ahead of November’s CPI
- The US Dollar is trading with gains, boosted by rising yields ahead of an eventful week ahead.
- On Tuesday, investors will pay close attention to November’s headline and Core Consumer Price Index (CPI). The first one is expected to have decelerated, while the latter remains sticky at 4%.
- The yields on US bonds are on an upward trend, with rates of 4.75% for the 2-year yield, 4.26% for the 5-year yield, and 4.28% for the 10-year yield.
- According to the CME FedWatch Tool, market anticipation indicates no hike for Wednesday’s meeting. However, the markets are pricing in less easing for 2024.
Technical Analysis: DXY Index bulls step in and regain the 20-day SMA
On the daily chart, the Relative Strength Index (RSI) displays a positive slope in positive territory, reflecting an upward momentum for the Index. The Moving Average Convergence Divergence (MACD) illustratively endorses this bullish narrative, as rising green bars suggest that buying pressure is solidifying.
Considering the Index’s positioning relative to the 20, 100 and 200-day Simple Moving Averages (SMAs), the situation offers further testament to this buyer-dominated environment. Despite being below the 100-day SMA, the index holding firm above both the 20 and 200-day SMA evinces the persistence of the buying force.
Support levels: 103.70 (20-day SMA), 103.50, 103.30.
Resistance levels: 104.50 (100-day SMA), 104.50, 104.70.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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