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This is a follow up article to: US dollar index loses strength as Fed rate-cut expectations grow.
The dollar index traded above 101.7 supported by market expectations of a smaller rate cut at the Federal Reserve’s upcoming meeting. This uptick in the greenback came on the heels of the latest U.S. consumer inflation report, which revealed a stronger-than-anticipated rise in underlying inflation for August.
Picture: U.S. dollar index rises above 101.7 after inflation data released, as observed on the VT Markets app.
We see the charts where the U.S. Dollar Index (USDX) has maintained a steady pace, closing at 101.735 after reaching an intraday high of 101.805. This movement aligns with a broader shift in market expectations regarding the upcoming Federal Reserve decision on interest rates. The recalibration of market bets now sees an 86% probability of a 25-basis-point rate cut, compared to a slim 14% chance for a larger 50-bps cut.
The EMA (24, 24, 72) in the chart shows price action bouncing off the 101.645 level, indicating potential consolidation around the 101.7 mark. The MACD indicator reflects mild bullish momentum, with buyers stepping in around support levels. However, with the market closely watching inflation data, any softer-than-expected readings could further strengthen the case for a more moderate 25-basis-point cut.
Although headline inflation continued to slow, marking its fifth consecutive monthly decline, the persistence of core inflation indicates that the Fed may lean towards a more measured approach in easing rates. Traders now await U.S. producer inflation data for additional cues on the central bank’s monetary path.
The recent presidential debate has increased the probability of a Kamala Harris victory, which contrasts with the market’s previous expectations that a Trump win would bring more tariffs and expanded fiscal spending, factors typically seen as dollar-supportive.
The potential for a shift in fiscal and trade policies is keeping investors cautious about the dollar’s medium-term trajectory.
For short-term traders, the current strength of the U.S. dollar could influence market sentiment leading up to the Fed’s rate decision.
However, political uncertainties may inject volatility into currency markets, so it is crucial to stay agile and monitor upcoming events closely to plan your news trading strategy.
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