US Dollar advances on Jerome Powell's hawkish remarks, eyes on UoM data

The DXY index slightly rose to 105.90.
Powell provided hawkish remarks on Thursday and markets are delaying rate cuts.
Jobless Claims from the first week of November 3 came in lower than expected.
Fed’s Barkin delivered hawkish comments during the session. Still, bets on a hike in December are low.
The University of Michigan reports Consumer Sentiment data on Friday.

Patricio Martín FXStreet

The US Dollar (USD) is seeing gains against its rivals on Thursday, with the DXY Index ascending to 105.90. The Greenback price dynamics were set by strong Jobless Claims data and rising US bond yields, which seem to be limiting the downside for the USD. All eyes are now on Inflation data next week, which could set the direction of the US Dollar in the short term.

Markets remain quiet this week as investors await fresh catalysts to place their bets on the next Federal Reserve (Fed) decision in December. Several officials were on the wires on Monday and Tuesday but didn’t provide any highlights. The focus seems to have turned to next week’s October inflation figures from the US. On Wednesday, Thomas Barkin commented that he wasn’t satisfied with the current inflation outlook, commenting that the job isn’t done.

Daily Digest Market Movers: US Dollar finds momentum as Powell hints at further tightening

The US Dollar Index stands with mild gains at 105.90.
Jerome Powell commented that he isn't convinced that the bank has achieved a restrictive stance and that he is monitoring the economic activity as its strength could undermine the progress made on inflation.
No high-tier reports will be released this week. Markets await next week’s inflation figures from the US and are still digesting last Friday’s US Nonfarm Payrolls report.
The Initial Jobless Claims from the week ending November 3 came in at 217,000, lower than the expected 218,000 and fell in relation to its last reading of 220,000.
As a reaction, the 2-year Treasury rate rose to 5%, while the longer-term 5 and 10-year rates increased to 4.60%, which seems to be making the USD gain traction.
Investors continue to be on the sidelines, awaiting high-tier reports to continue placing their bets on the next Fed decision.
According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are extremely low, below 10%.

Technical Analysis: US Dollar Index bulls revived by Powell's words, outlook improves somwhat

According to the daily chart, the technical outlook for the DXY Index remains neutral to bearish, with bulls making a significant move on Thursday but with bears being around the corner. The Relative Strength Index (RSI) moved above the 50 middlepoint while the Moving Average Convergence (MACD) displays stagnant red bars.

What gives the outlook neutrality is the index staying below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, indicating that the bulls still have the upper hand in the broader picture. As long as the bear manage to hold the index below this level, the index will remain vulnerable to further downside.

Support levels: 105.50,105.30,105.00.
Resistance levels: 106.00, 106.10 (20-day SMA), 106.30.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Patricio Martín

FXStreet

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

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