Key Points:
The dollar index (USDX) advanced to 103.18, a level not far from Monday’s two-month high of 103.36. With a 2.5% rise over the past few weeks, the index is on course to snap a three-month losing streak.
Recent U.S. economic data has reflected a resilient economy, with inflation rising slightly above expectations in September. This has led traders to pull back on expectations for aggressive rate cuts from the Fed.
Fed Governor Christopher Waller’s comments added further caution, as he noted that the upcoming non-farm payrolls (NFP) print might show distorted results.
Waller cited disruptions from hurricanes and the Boeing strike, warning that these factors could subtract over 100,000 jobs from the October data.
With this “messy” labour market reading, traders are bracing for a lack of clarity ahead of the November Federal Open Market Committee (FOMC) meeting.
Picture: USDX hovers near 102.965, with bullish momentum building ahead of key economic data and Fed signals, as seen on the VT Markets app.
The key points to note are the USDX’s steady upward trend, with the index closing at 102.965 and testing resistance near 103.125.
The alignment of moving averages and positive MACD momentum indicates strong buying interest, but attention is needed as upcoming U.S. retail sales and jobless claims data could shift momentum.
The Fed’s smaller-than-expected rate cut expectations are providing support, but further gains will depend on whether the dollar can break past resistance or face a pullback towards 102.530 as support.
In the broader context, the US dollar has recently strengthened, hitting a nine-week high amid expectations that the Federal Reserve may implement smaller rate cuts than anticipated.
Market participants now expect a more modest easing cycle, with roughly 45 basis points in cuts priced for 2024 and another 98.5 basis points expected in 2025.
The dollar’s strength has weighed heavily on the yen, which touched a 2-1/2-month high of 149.98 per dollar on Monday.
The yen last reached the 150 level in August, and traders are now on high alert for potential intervention by the Bank of Japan.
Governor Kazuo Ueda’s dovish shift, along with opposition to rate hikes from Japan’s new Prime Minister Shigeru Ishiba, has dimmed hopes of tighter policy in the near term.
Elsewhere, China’s offshore yuan traded at 7.0935 per dollar after reports suggested that China may issue 6 trillion yuan ($850 billion) in bonds over three years to stimulate its slowing economy.
Analysts expect further announcements from the upcoming National People’s Congress standing committee meeting later this month, which could offer additional fiscal measures to bolster growth.
The Australian dollar remained steady at $0.67275, while the New Zealand dollar dipped 0.13% to $0.6089.
The euro also stayed subdued, last trading at $1.0908, as traders await the European Central Bank’s policy decision on Thursday.
With the ECB likely to implement another rate cut, the euro remains under pressure.
The Fed’s cautious easing path, combined with the yen’s vulnerability to further depreciation, suggests that volatility in currency markets may continue.
Traders will closely monitor upcoming U.S. retail sales data, jobless claims, and non-farm payrolls in the lead-up to the November FOMC meeting.
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