- DXY index declined to 106.20, down by 0.40%.
- US government bond yields are declining, while Wall St indexes are rising.
- Focus is set on Friday’s Nonfarm Payrolls report for October.
The US Dollar (USD) tumbled on Thursday, and the DXY index declined to 106.20, driven by dovish bets on the Federal Reserve (Fed) and falling US bond yields following Wednesday’s decision and Chair Powell’s tone. All eyes are now on the Nonfarm Payrolls (NFP) report from October on Friday, which could set the tone of the USD in the short term and extend its losses.
The Federal Reserve (Fed) and Chair Jerome Powell welcomed the latest data, which showed that the United States economy remains strong, and noted that the job creation pace and inflation are decelerating. In addition, Powell hinted that the bank has tightened significantly and that in the next decisions, he will consider the tighter financial conditions and the cumulative effects of monetary policy.
Daily Digest Market Movers: US Dollar declines on dovish bets on the Fed, labor market weakness
- The DXY index plunged below the 20-day SMA, toward 106.20, down by 0.40%.
- Ahead of October NFPs on Friday, the US reported soft labour market data.
- The Unit Labour Costs from Q3 declined by 0.8% QoQ, while markets expected a 0.7% expansion.
- In addition, the US Department of Labor revealed that the Initial Jobless Claims from the week ending October 28 came in higher than expected. Folks filing for unemployment benefits came in at 217,000, higher than the consensus of 210,000 and an increase in relation to its last reading of 212,000.
- Elsewhere, US Treasury yields are sharply falling. The 2-year rate fell to 4.98%, while the longer-term 5 and 10-year rates retreated toward 4.63% and 4.67%, hindering the US Dollar from finding demand.
- According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are still low, around 20%, adding further pressure to the USD.
Technical Analysis: US Dollar Index bulls give up, losing the 20-day SMA
The technical analysis of the daily chart suggests a neutral to bearish stance for the DXY Index as the bears work on staging a recovery and exerting their presence. The Relative Strength Index (RSI) points southward below its midline, while the Moving Average Convergence (MACD) histogram displays increasing red bars. Furthermore, the index is below the 20-day Simple Moving Average (SMA), which could pave the way for additional downward movements in the short term.
That being said, the DXY holds above the 100 and 200-day SMAs, pointing toward the prevailing strength of the bulls in the larger context.
Supports: 106.00, 105.70, 105.50
Resistances: 106.30 (20-day SMA), 106.50,106.90.
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.