US Dollar extends losses after US CPI, Fed decision looms – Crypto News – Crypto News
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US Dollar extends losses after US CPI, Fed decision looms – Crypto News

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  • The DXY Index is trading with losses below the 104.00 mark.
  • US November showed no surprises and confirmed a deceleration.
  • Investors await Fed Interest Rate Decision due this Wednesday.

The US Dollar (USD) is currently undergoing a slight retreat as the DXY index trades at 103.85 after the release of November’s Consumer Price Index (CPI) figures from the US, which fueled dovish bets on the Federal Reserve. 

Against a backdrop of cooling inflation and despite a strong labor market, the Fed appears susceptible to veering toward a more dovish stance. In that sense, Fed officials are not ruling out further policy tightening, so markets will closely monitor the bank’s stance at the upcoming meeting on Wednesday.

Daily Market Movers: US dollar dips after CPI data, markets see rate cuts in May 2024

  • The US Dollar trades lower as investors assess the impact of US CPI data and dovish expectations from the Federal Reserve.
  • In November, the US saw a predicted easing in inflation, according to the CPI. The CPI recorded a modest rise of 0.1% for the month. Compared to October’s 3.2%, the annual inflation rate slightly decreased to 3.1%.
  • Core CPI reported by the US Bureau of Labor Statistics remained unchanged at 4% YoY, matching both the previous and expected figures.
  • Meanwhile, US bond yields are down with 2-year, 5-year and 10-year yields at 4.71%, 4.23%, and 4.22%, respectively.
  • According to the CME FedWatch Tool, a rate hike is not expected in Wednesday’s meeting, with the market betting on rate cuts likely to happen in May 2024.

Technical Analysis: DXY bulls hold resilient, indicators still weak

The indicators on the daily chart reflect a bit of a mixed picture for the pair. The Relative Strength Index (RSI) is in negative territory with a negative slope, indicating diminishing buying momentum. This is reaffirmed by the status of the Moving Average Convergence Divergence (MACD) indicator, which is registering decreasing green bars.

Bucking short-term cues, the Simple Moving Averages (SMAs) showcase a broader bullish trend. The pair remains above the 20-day SMA and crucially above the 200-day SMA, highlighting that bulls have the upper hand in a wider time frame despite temporary bearish leanings.

However, the pair’s position below the 100-day SMA suggests a note of caution and potentially a near-term consolidation or pullback phase. The ongoing action on the charts can be seen as bears taking a breather, while bulls remain resilient. 

Support levels: 103.70 (20-day SMA), 103.50, 103.30.
Resistance levels: 104.50 (100-day SMA), 104.50, 104.70.

 

 

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.

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