Key points:
The U.S. dollar held near its lowest point in more than a year against a basket of currencies on Wednesday. This stability in the dollar comes as traders await crucial signals from the Federal Reserve on the expected interest rate cuts next month.
Meanwhile, the British pound and the euro are trading close to multi-year highs, reflecting the market’s focus on U.S. economic data and its implications for future monetary policy.
In early Asia trading, cryptocurrency Bitcoin took a hit, dropping over 6% after breaching the $60,000 support level. This move underscores the continued volatility in the cryptocurrency market, even as traditional currencies remain relatively stable.
The foreign exchange market, in general, has seen muted movements as traders are largely in a holding pattern, waiting for new data on the state of the U.S. economy.
Market participants largely agree that the Federal Reserve will start cutting interest rates next month, following a dovish signal from Fed Chair Jerome Powell last week. The current debate centres on whether the cut will be a modest 25-basis point reduction or a larger, more aggressive 50-basis point cut.
There is now a 36% probability of a 50-basis point cut, up from 29% just a week ago. This shift indicates a growing sentiment among traders that the Fed may take more decisive action.
The market is fully pricing in a 25-basis point cut for next month, with expectations of a total of 100 basis points of easing by the end of the year.
Later this week, a preliminary estimate of the U.S. gross domestic product (GDP) for the second quarter is due, along with the Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) index.
However, with market attention shifting from inflation concerns to the overall strength of the economy, the PCE data’s impact might be less pronounced.
The U.S. dollar index (USDX), which tracks the greenback against a basket of currencies, was last up by a mere 0.02%, at 100.61, barely above the 13-month low of 100.51 it hit earlier this week.
See: Dollar index holds steady on the VT Markets app.
Looking at chart history, the U.S. Dollar Index (USDX) has experienced a notable decline this month, depreciating by 3.4% and positioning it for its largest monthly drop since November 2022.
This sharp decline is representative of a broader weakening trend in the dollar, as global markets respond to a combination of economic data, shifting Federal Reserve policy expectations, and external factors influencing the currency market.
The weekly chart illustrates this downtrend, with the dollar index trading around 100.570, just above a critical support level at 100.615. The Moving Averages (5, 10, 30) are sloping downward, signaling continued bearish momentum. The MACD indicator further reinforces this outlook, as the MACD line remains below the signal line and the histogram shows increasing negative momentum, indicating that the dollar’s weakness may persist in the near term.
Traders are closely watching the 100.615 support level, as a breach below this threshold could accelerate the dollar’s decline, potentially targeting the next key support around 96.000. Conversely, if the dollar manages to stabilize and bounce back, resistance near the 104.000 level could be a barrier.
Apart from the USDX, Sterling saw a slight dip to $1.32585, just below its highest level since March 2022, reached on Tuesday. The euro also slipped marginally, trading at $1.117825, still close to the 13-month peak it touched earlier this week.
The Japanese yen edged down by 0.18%, trading at 144.225 per dollar, retreating from Monday’s three-week high of 143.45.
In case you missed, read: GBPUSD rises to 2024 high on positive data and dollar weakness
In the crypto markets, Bitcoin was last down 4.37%, trading at $59,137.00 after an earlier slide of more than 6%.
We see this sharp decline as representative of the uncertainty and volatility within the digital asset space, contrasting with the more measured moves in traditional forex markets.
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