US Dollar rises ahead of Fed and May’s CPI figures – Crypto News – Crypto News
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USD Index to challenge the top end of its recent trading range of 110-115 – HSBC USD Index to challenge the top end of its recent trading range of 110-115 – HSBC

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US Dollar rises ahead of Fed and May’s CPI figures – Crypto News

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  • USD sees continuous rise with keen eye toward FOMC meeting, prolonging its third consecutive day of gains.
  • US economic outlook remains strong and investors await fresh economic forecasts from the FOMC.
  • Markets anticipate hawkish tone on Wednesday’s Fed decision.

On Tuesday, the US Dollar Index (DXY) saw an upward trend toward the 105.36 area. The session won’t provide any highlights as cannons are pointing to Wednesday’s session.

The two-day Federal Open Market Committee (FOMC) meeting, which kicked off on Tuesday and will end on Wednesday, is eyed by market observers. Any changes to the interest rate outlook or guidance by Federal Reserve (Fed) members are bound to stir market movements. The outcome of the famous dot plot will also be closely watched.

Daily digest market movers: DXY gains further ground on quiet Tuesday, eyes on FOMC

  • Updated dot plots will provide valuable insight. A single shift from three interest rate cuts to two by a Fed policymaker could potentially elevate the 2024 median from 4.625% to 4.875%.
  • Markets expect a seemingly ‘hawkish hold’ from the Fed, keeping rates at 5.5%.
  • Consequently, the odds of a September cut appear to be a 50:50 chance, and November cut odds stand at approximately 85%.
  • US will also release inflation data on Wednesday. The core Consumer Price Index (CPI) for May is forecast to decelerate slightly to 3.5% YoY, while headline inflation is anticipated to remain steady at 3.4%.

DXY technical analysis: Fundamentals on Wednesday to stir trajectory

Indicators on the daily chart remain strong, and both the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) jumped to positive terrain. Additionally, the Index recovered above the 20, 100, and 200-day Simple Moving Averages (SMA), which brightened the outlook for the short term.

Fundamental stimulus on Wednesday will dictate the pace of the next sessions, and markets should eye the 106.00 area in case the DXY faces bullish pressure. On the downside, the 104.50 area remains as a strong support.

 

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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