- The DXY Index declined to 103.70, seeing mild losses.
- US markets will remain closed on Thursday as the country celebrates Thanksgiving.
- The focus shifts to Friday’s S&P Global PMIs.
On Thursday, the US Dollar measured by the DXY index saw little downward movements. The markets are closed due to the Thanksgiving celebration, and the focus shifts to the S&P preliminary PMIs for November.
The United States economy showed that inflation and job creation cooled down in October, which was welcomed by Federal Reserve (Fed) officials. However, the Federal Open Market Committee (FOMC) Minutes from the November meeting and several officials warning that one month of positive data might not be enough to call it a victory means that the incoming data will determine the USD’s trajectory.
Daily Digest Market Movers: US Dollar loses further ground as investors bet on a dovish Fed despite warnings
- The US Dollar Index trades weak around 103.70.
- Despite warnings by the Fed, markets still bet on a less aggressive stance after the report of soft inflation figures from October.
- The US Bureau of Labor Statistics reported that October’s Core Consumer Price Index (CPI) missed the consensus. It came in at 4% YoY vs the expected 4.1% and decelerated from its previous figure of 4.1%.
- The headline figure came in at 3.2%YoY, below the consensus of 3.3% and in relation to its last reading of 3.7%.
- In addition, the Core Producer Price Index (PPI) from October fell short of expectations. It came in at 2.4% YoY vs the expected 2.7% and declined from its previous reading of 2.7%.
- The Federal Open Market Committee’s November Minutes revealed that officials were concerned about inflation and needed to see more evidence to be convinced that inflation is coming down.
- Markets are confident that the Federal Reserve won’t hike in December and are betting on rate cuts sooner than expected in May 2024. A sizable minority is even betting on a rate cut in March.
Technical Analysis: US Dollar sellers gain ground, eyes on bearish crossover
The indicators on the daily chart reflect a predominance of bearish momentum while revealing some remaining bullish potential. The Relative Strength Index (RSI) nearing oversold conditions may suggest exhausted selling pressure, with a potential turnaround in favour of buyers while the Moving Average Convergence Divergence (MACD) shows flat red bars.
Furthermore, the index position below the 20-day and 100-day Simple Moving Averages (SMAs) suggests that the selling momentum prevails in the short term, but the index above the 200-day SMA implies that the longer-term bullish trend could still influence it. However, a looming bearish crossover between the 20-day SMA and the 100-day SMA underscores the possibility of augmented selling momentum.
Support levels: 103.60 (200-day SMA), 103.30, 103.15.
Resistance levels: 104.00, 104.20 (100-day SMA),104.50.
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.
Read the full article here