Key points:
The U.S. dollar held steady on Friday as the market’s focus turned to Federal Reserve Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium.
See: Dollar index trading at 101.220 on the VT Markets app.
We see here that USDX chart reflects the current market uncertainty as traders seek direction on the Federal Reserve’s next moves, particularly in light of cooling U.S. inflation and signs of softening in the labour market.
The index closed at 101.220 after hitting a low of 100.755 earlier in the session, with a slight downtrend of 0.10%. The Moving Averages (MAs) on the chart (5, 10, 30) are showing mixed signals, with the price currently trading slightly below the shorter-term MAs, indicating some bearish momentum.
The MACD indicator adds to the cautious outlook, with the MACD line crossing below the signal line and the histogram showing declining bullish momentum. This suggests that traders are still uncertain about the dollar’s direction as they await more concrete signals from the Fed regarding potential interest rate cuts.
Traders should monitor key levels, particularly the support around 100.755, and the resistance near 101.535, for potential breakouts that could set the tone for the next move in the dollar index.
Meanwhile, the Japanese yen showed resilience, strengthening to 145.78 per dollar after data revealed a third consecutive monthly acceleration in Japan’s core inflation for July. This marks a shift for the yen, which had plummeted to 38-year lows before Japan’s surprise interest rate hike last month. The rate hike disrupted the popular carry trade, where investors borrow yen to invest in higher-yielding assets, causing the yen to appreciate sharply.
Bank of Japan (BOJ) Governor Kazuo Ueda, addressing Japan’s parliament, sought to reassure the markets that the central bank remains vigilant and ready to act if economic conditions align with their forecasts.
This comes as a response to the market turmoil triggered by the rate hike, which caused a global selloff in early August. Despite the recovery in most markets, Ueda’s comments suggest that the BOJ is prepared to intervene further if necessary.
In contrast, the Federal Reserve appears poised to begin easing its monetary stance. Traders are currently pricing in a 73.5% chance of a 25 basis point cut at the Fed’s September meeting, with a total of 99 basis points of easing anticipated by year-end. However, some analysts caution that the Fed may not deliver as many cuts as the market expects, especially if economic data fails to deteriorate significantly.
The euro remained stable at $1.1119, close to the 13-month high reached earlier this week. Similarly, sterling was at $1.3099, just below its recent peak. Both currencies reflect a market sentiment that expects fewer rate cuts from the European Central Bank and Bank of England compared to the Fed.
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The Australian and New Zealand dollars also showed minimal movement, with the AUD at $0.6709 and the NZD slightly higher at $0.61465.
Both currencies remain sensitive to global risk sentiment and commodity prices, which have been volatile amid fluctuating expectations for global growth.
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