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The U.S. dollar weakened slightly, reflecting growing market bets on a Federal Reserve rate cut later this month. The dollar index (USDX) dropped as traders adjusted their expectations following Friday’s Non-Farm Payrolls report.
Picture: USDX tests resistance at 106.02, with MACD supporting potential further gains, as seen on the VT Markets app.
Looking at the chart, the USDX shows signs of a bullish short-term bias, with the price holding above recent support and trying to break through resistance. The MACD confirms this momentum, but traders should closely monitor key levels, particularly 105.37 for support and 106.02 for resistance
Although the U.S. economy added 227,000 jobs in November and wages saw an uptick, the unexpected rise in the unemployment rate boosted the case for a rate cut.
Data suggests the labour market is cooling, providing room for the Fed to cut rates by 25 basis points at its December 18 meeting.
The market is now pricing in an 85% probability of the rate cut, further dampening the dollar’s appeal.
This expectation shift is forecasted to contribute to a softer dollar, even as investors turn to safe-haven assets in response to global political unrest, particularly the escalating tensions in the Middle East and other regions.
The dollar may struggle to maintain strength as rate cuts reduce its yield advantage over other currencies.
As traders continue to weigh the implications of the Fed’s policy direction, the dollar could face further pressure, particularly if the inflation data released this week points to continued economic moderation.
The currency’s short-term trajectory will likely be shaped by both domestic economic indicators and geopolitical developments, with the next few days crucial for determining whether the dollar’s downward trend continues.
See also: Week Ahead: Rates, Rebounds, Revelations
Market participants are expected to turn their attention to the Fed’s December meeting, with eyes on inflation data and further economic signals that may solidify the case for the anticipated rate cut.
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