- The DXY Index stands at 103.90, seeing losses of around 0.40% and tallying a 1.60% weekly decline.
- Investors continue to digest the data reported throughout the week.
- The combo of cooling inflation and the labor market points to the Fed not hiking anymore.
- Fed’s Susan Collins was seen as hawkish on Friday.
At the end of the week, the US Dollar Index saw red and declined to 103.90 to close a 1.60% losing week. Soft inflation figures and weak economic activity data from the US were mainly responsible for the Greenback’s decline.
As the United States economy displayed signs of inflationary pressures and the labor market cooling down, markets seemed to be cheering that the Federal Reserve (Fed) is done with hiking, causing the US Dollar to weaken throughout the week. In the next week, the US will release Durable Goods figures from October and S&P PMIs for November.
Daily Digest Market Movers: US stands soft as investors assess the week’s data
- The US Dollar Index resumed its downward movements toward 103.90.
- During the week, the US Dollar significantly weakened due to the report of soft Inflation figures and weak economic activity data.
- The US Bureau of Labor Statistics reported that October’s Core Consumer Price Index (CPI) missed the consensus. It came in at 4% YoY vs the expected 4.1% and decelerated from its previous figure of 4.1%.
- The headline figure came in at 3.2%YoY, below the consensus of 3.3% and in relation to its last reading of 3.7%.
- In addition, the Core Producer Price Index (PPI) from October fell short of expectations. It came in at 2.4% YoY vs the expected 2.7% and declined from its previous reading of 2.7%.
- On the other hand, Retail Sales from October came in better than expected, declining by 0.1% MoM vs the expected 0.3% decline.
- During the week ending November 11, the number of US Initial Jobless Claims increased to 231,000, surpassing the predicted 220,000.
- Industrial Production in the United States fell short of expectations, experiencing a 0.6% MoM decline, higher than the -0.3% expected. It also tallied a YoY decrease of 0.7%.
- On Friday, it was reported that Housing Starts and Building Permits from October came in better than expected.
- Susan Collins from the Fed commented that she wouldn’t take further tightening off the table. It will all come down to the incoming data.
- In the meantime, US Treasury yields slightly rose, with the 2-year increasing to 4.90%, while the 5 and 10-year rates rose to 4.45% and 4.44%, respectively.
- According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are zero. Markets are betting on rate cuts appearing sooner than expected in May 2024, if not March.
Technical Analysis: US Dollar bears regain the 100-day SMA, more downside on the horizon
According to the daily chart, the DXY holds a bearish technical bias as the sellers are seizing control, signaling the potential of further downward movement. The Relative Strength Index (RSI) is trending below its midline, suggesting a bearish outlook, while the Moving Average Convergence (MACD) histogram shows rising red bars.
On the broader scale, the index is below the 20 and 100-day Simple Moving Average (SMA), favoring the case of a negative outlook for the USD.
Support levels: 103.80,103.60 (200-day SMA), 103.30.
Resistance levels: 104.15 (100-day SMA),104.50, 105.00.
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.