US Dollar Index eyes to regain 109.00 ahead of US Durable Goods Orders, Jackson Hole

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US Dollar gives markets a kick in the nuts with equities nosediving after red hot inflation report – Crypto News

Published

3 years ago

February 13, 2024

Dripp

The US Dollar gets pumped on higher inflation numbers.
Market expectations got a kick in the nuts due to rising inflation numbers.
The US Dollar Index holds heads to 105 at the speed of light.

The US Dollar (USD) is giving markets a kick in the nuts on all fronts. The US Consumer Price Index (CPI) numbers is coming in higher than expected on both the Core and Headline Inflation for both the Monthly and Yearly benchmarks. The upbeat surprise is a cold shower for markets which were tilted to further disinflation with only worrying about either a March or June rate cute, while under these conditions even a June rate cut is starting to look very doubtfull.

On the economic front, The National Federation of Independent Business (NFIB) saw a quicker than expected decline in its Index for January ahead of the US Consumer Price Index numbers. CPI numbers already moved the markets substantially and are pushing overall sentiment into Risk Off. Equities are plunging lower, yields are jumping higher and rate cut expectations are being pushed further down the line with hopes for quick rate cuts being shelved for now.

Daily digest market movers: Buy the fact

The National Federation of Independent Business (NFIB) has released its Business Optimism Index for January and saw a quick decline from 91.9 to 89.9 where 91.1 was expected.
At 13:30 GMT, the US Consumer Price Index is due to be released:
- Monthly Headline Inflation went from 0.2% to 0.3%.
- Monthly Core Inflation went from 0.3% to 0.4%.
- Yearly Headline Inflation went from 3.4% to 3.1%, les disinflationary as expected.
- Yearly Core Inflation remained steady at 3.9%
- Rate Cut expectations are being pushed to later dates on the back of this inflation report, with higher yields giving the US Dollar an upward drive against most major peers in the currency markets.
The US Redbook Index for February 9th is due to be released near 13:55 GMT. Previous print was at 6.1%.
Equity markets are very much dispersed this Tuesday, with Japan seeing its two major indices closing over 2% higher. Europe is not following suit and rather sees its Euro Stoxx 50 down near 1%. US equity futures are retreating as well after the Dow Jones briefly hit new all time highs on Monday.
The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 84.5%, while 15.5% for a rate cut.
The benchmark 10-year US Treasury Note trades near 4.27%, over a one-month-high.

US Dollar Index Technical Analysis: Hurting short US Dollar bets

The US Dollar Index (DXY) is roaring with this hot inflation report. The disinflationary path that markets had projected no longer fits the actual situation the recent CPI report has shown. Rate cuts will not happen in March and even June looks unlikely at this moment. So time for more push-and-pull readjustment in the US Dollar with this time more upside in the DXY, heading to 105.

Should the US Dollar Index move higher again, first look for a test at the peak of last week’s Monday, near 104.60. That level needs to be broken and is more important than the 100-day Simple Moving Average snap at 104.26. If price breaks above last Monday’s high (February 5), the road is open for a jump to 105.00 with 105.12 as key levels to keep an eye on.

The first ideal candidate for support is the 200-day SMA near 103.64. Should that give way, look for support from the 55-day SMA near 103.04 itself. Should those fail, look for 102.00 as a big figure to do the necessary.

US 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.