US Dollar edges lower as markets await December CPI figures – Crypto News – Crypto News
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US Dollar edges lower as markets await December CPI figures – Crypto News

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  • DXY Index registers minor losses, trading around 102.40.
  • Investors are on standby awaiting CPI figures to be released on Thursday.
  • Lower US yields limit the US Dollar advance. 

The US Dollar (USD) observed modest losses on Wednesday, trailing at 102.4 in the US Dollar Index, as market participants stick to the sidelines awaiting drivers. The trading floors were relatively quiet with no significant reports fuelling reactions during the session. The focus is set on the release of the US Consumer Price Index (CPI) from December, due on Thursday.

For now, markets are betting on five rate cuts in 2024, largely dismissing the Federal Reserve (Fed) forecast of only 75 bps of easing. Strong labor market data from the US economy was largely offset by a weak US ISM PMI print, so December’s CPI reading will play a big role in shaping expectations of the central bank’s easing calendar.

Daily digest market movers: US Dollar edges lower on quiet Tuesday, Fed Williams will be on the wires

  • The US economy demonstrates continued expansion above trend with Q4 and possibly Q1 growth, bolstered by loose financial conditions. 
  • The US Dollar remains vulnerable as market easing expectations for the Federal Reserve remain high yet unmet. Fed’s Williams will be on the wires by the end of the American session, which may move markets.
  • For Thursday, the December Consumer Price Index is projected to come in at 3.2% YoY, above the previous 3.1%. The core annual reading, however, is expected at 3.8%, easing from 4% in November.
  • US bond yields, specifically for the 2, 5 and 10-year bonds, are on a downward trajectory. The yields are seen at 4.35%, 3.96% and 4.02%, which should limit upside for the USD.
  • Market anticipations gauged through the CME FedWatch Tool suggest a hold on rates in the upcoming January meeting is priced in. Cuts in interest rates are, however, expected around March and May 2024. 

Technical Analysis: DXY bulls are undecided as sellers sit just around the corner

The indicators on the daily chart reflect a decrease in buying momentum and increase in selling pressure. The Relative Strength Index (RSI), which is on a negative slope and in negative territory, suggests that bears are around the corner. 

In addition, a decreasing histogram of green bars in the Moving Average Convergence Divergence (MACD) indicator confirms the growing bearish sentiment, indicative of a decrease in bullish momentum. Despite bulls taking a breather, they still are struggling to make a decisive upward move.

This lack of bullish momentum is also confirmed by the position of the index in relation to the Simple Moving Averages (SMAs). While it remains above the 20-day SMA, it is under the broader 100 and 200-day SMAs, suggesting bears are maintaining a bullish grip on the larger time horizon.

Support levels: 102.30, 102.00 (20-day SMA), 101.80.
Resistance levels: 102.70, 102.90, 103.00.

 

 

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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