- US Dollar loses momentum on decelerating CPI figures.
- Market now more certain of September cut.
- US Treasury yields fall, making traders lose interest in USD.
The US Dollar has extended its losses and the DXY index slips further on Thursday, mainly due to the decelerating inflation figures from the US Consumer Price Index (CPI), which makes an even better case for a September interest rate cut by the Federal Reserve (Fed).
Though markets are getting increasingly confident about the rate cut, Fed officials remain cautious and have indicated that they are not in a hurry to implement changes without studying data-driven indicators thoroughly.
Daily digest market movers: DXY under stress as inflation softens and markets expect a rate cut
- Keeping with his earlier stance, Fed Chair Powell reiterated that the Fed’s job is not yet done when it comes to managing inflation and even suggested the Fed has more work to do.
- He indicated that the confidence to lower rates based solely on inflation is not sufficient yet, but also pointed out that the Fed doesn’t need inflation to be under 2% before rate cuts begin.
- On the data front, the US Consumer Price Index (CPI) for June reported a decline to 3% YoY from 3.3% in May as per the US Bureau of Labor Statistics (BLS), below the market’s expectations. The core measure rose by 3.3% YoY, lower than the 3.4% expected.
- Amid continued signs of inflation softening, market participants’ confidence in a potential rate cut in September strengthens, placing downward pressure on USD.
DXY technical outlook: Negative outlook intensifies as DXY loses 100-day SMA
The DXY index losing its 10-day Simple Moving Average (SMA) has stirred up a negative outlook for the USD with both the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicators swinging into negative trajectory.
The 100-day SMA threshold has been breached, intensifying the bearish tone. The next potential backstop for further declines could be noted at the 200-day SMA level, providing a critical bottom for the market.
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