- The DXY Index plummeted to its lowest level since July, falling below 101.00.
- Market speculation is leaning toward six rate cuts by the Federal Reserve for 2024.
- For now, investors are anticipating the first cut in March.
The US Dollar (USD) continues its steep decline, as the US Dollar Index (DXY) drops down to 100.95, hitting its lowest point in five months. This downward slide has been largely fueled by dovish expectations, following the release of weak US Personal Consumption Expenditures (PCE) Price Index figures last week.
In its last meeting of 2023, the Federal Reserve took a dovish stance, embracing subdued inflation figures and ruling out a rate hike in 2024, instead favoring 75 bps easing. Market forecasts for potential rate cuts in March and May further reinforce this position. The anticipation of monetary easing by the Fed typically weakens the US Dollar, as lower interest rates make dollar-denominated assets less attractive, prompting investors to seek better returns elsewhere. Additionally, the release of soft US PCE Price Index figures only intensified these expectations, as cooling inflation supports an earlier-than-anticipated start to the easing cycle.
Daily Digest Market Movers: US Dollar Index retreats amid dovish market expectations, lower bond yields weigh
- The US Core Personal Consumption Expenditures (PCE) Price Index in November saw a 3.2% year-over-year increase, slightly below market expectations of 3.3%.
- According to the CME FedWatch Tool, markets are predicting a rate hold for the upcoming January Federal Reserve meeting, with a low 15% likelihood of a rate cut. For the March and May 2024 meetings, markets are pricing in rate cuts.
- Overall, markets are factoring in 160 bps of easing in 2024, as opposed to the Federal Open Market Committee (FOMC) median of 75 bps.
- No significant reports are expected in the final week of 2023. Investors will keep a close watch on this week’s US Jobless Claims data, slated for Thursday.
Technical Analysis: DXY Index selling pressure persists, an upward correction is likely
Indicators on the daily chart indicate a prevailing selling pressure on the US Dollar Index. The Relative Strength Index (RSI) is presently in oversold territory, which, from a contrarian standpoint, signals a potential upcoming correction. The Moving Average Convergence Divergence (MACD) shows increasing red bars, often a sign of significant bearish momentum.
On a broader scale, the index sits below the 20, 100, and 200-day Simple Moving Averages (SMAs), underscoring the strong ongoing bearish control in the market. In light of these indicators, buyers will need to make significant efforts for a bullish reversal to take place.
Support levels: 100.80, 100.50, 100.30.
Resistance levels: 101.00, 101.30, 101.50.
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