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US Dollar advances fueled by hawkish Fed’s Waller remarks – Crypto News
- The DXY Index rose near 103.40 but was rejected by the 100-day SMA.
- Fed’s Waller commented that the bank is within “striking distance of achieving sustainable 2% inflation”.
- Rising US yields made the US Dollar gain interest.
- Dovish bets on the Fed remain high.
The US Dollar (USD) started the trading session by surging to the 103.40 mark, quickly being pulled back by the resistance of the 100-day SMA. This swift rebound was primarily due to US traders returning from their holiday, further catalyzed by a progressive rise in yields. Federal Reserve’s (Fed) Christopher Waller’s hawkish comments where he noted that achieving a 2% inflation rate won’t be as easy as expected and intends only three rate cuts in 2024.
The markets are anticipating that the Fed’s easing cycle will begin in March, followed by another rate cut in May, which may limit any upside for the US Dollar. Despite higher CPI numbers, the market remains stubborn and expects the Fed to initiate its easing cycle sooner rather than later, and the soft PPI readings gave markets a reason to bet on a less aggressive approach.
Daily digest market movers: US Dollar finds strength as US traders return, bond yields rise
- No significant reports were released during the session.
- US bond yields are edging higher, with the 2-year yield at 4.20%, the 5-year yield at 3.90% and the 10-year yield at around 4%.
- Forward-looking markets anticipate that for the upcoming January meeting, the CME FedWatch Tool points toward no hike, with low probabilities of a rate cut. Additionally, markets are pricing higher odds of rate cuts in March and May 2024.
- This week, the US will release Retail Sales figures from December and the Fed’s Beige Book, which may have an impact on those expectations.
Technical Analysis: DXY gets additional ground must regain the 100-day SMA to confirm a reversal
The Relative Strength Index (RSI), showcasing a positive slope in positive territory, points toward increasing bullish momentum. The Moving Average Convergence Divergence (MACD) affirms this trend with rising green bars, suggesting a build-up of buying pressure. The ongoing bullish control is further emphasized by the asset standing above the 20-day Simple Moving Average (SMA) – a sign of short-term strength.
On the contrary, the index’s position below the 100-day and 200-day Simple Moving Averages (SMAs) portrays an overarching bearish stance. This position indicates that despite short-term bullish advances, sellers still hold a broader market control and that buyers must regain the 100-day average to start considering the upward movements a reversal.
Support levels: 103.00, 102.80, 102.50.
Resistance levels: 103.40 (100-day SMA), 103.60, 103.80.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
