US Dollar sell-off triggers an earthquake in all major currency pairs, in the CPI aftermath
- The Greenback tanks as all inflation numbers decline on all fronts.
- Traders price out any hikes and see yields decline.
- The US Dollar Index drops substantially lower as all major currencies advance against the Greenback.
The US Dollar (USD) is nosediving on Tuesday after the crucial US inflation data for October. Trades are quick to sell the Greenback now that the assumption is that yields have peaked. In terms of next steps for the US Federal Reserve, traders are seeing a 50 basis point cut in rates by June next year.
The fallout of the devaluation of the Greenback is been seeing in several big parts of the foreign currencies crosses. Central and Eestern Eurpean (CEE) currencies are advancing substantially with even a near fresh 3-year low against the Euro in the Polish Zloty (EUR/PLN). The Czech Koruna (USD/CZK) is up nearly 2% against the Greenback. Even hours after the Consumer Price Index (CPI) print, the US Dollar Index (DXY) resides near session's low with several crosses and pairs set to eke out more pips against the devaluing US Dollar.
Daily digest: US Dollar no longer king
- With the European trading session nearly at an end, several currency pairs incorporating the US Dollar are near session's high, in the disfavor of the USD. Biggest winners this Tuesday are the CEE currencies with the Polish Zloty and Czech Koruna as biggest advancers against the Greenback, near 2% and see their price advance several big figures intraday.
- Fed Vice Chair Philip N. Jefferson, no real headlines to retain.
- At 11:00 GMT, the National Federation of Independent Business (NFIB) was released and went from 90.8 to 90.7.
- The US Consumer Price Index for October got released:
- Monthly Headline inflation went from 0.4% to 0.0%.
- Monthly Core Inflation went lower to 0.2% against 0.3% expected.
- The yearly headline inflation rate went from 3.7% to 3.2%.
- The yearly core inflation rate went from 4.1% to 4%.
- In the aftermath of the numbers, the Greenback devalued substantially by 1% or more against the Euro, Chinese Yuan and Pound Sterling.
- Chicago Fed President Austan Goolsbee is due to speak at 17:45 GMT.
- Equities are jumping higher with over 1% profit for all three major US indices, in the assumption market conditions should start to ease with the end of the Fed's hiking cycle in mind.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 94.8% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. At the start of this Tuesday, expectations were nearly 10% lower, around 85%.
- The benchmark 10-year US Treasury yield trades at 4.44%, and accelerates its decline as investors are falling head of heels in buying US bonds.
US Dollar Index technical analysis: US Dollar rally is done for
The US Dollar is dropping like a stone after recent US CPI data contradicted warnings of US Federal Reserve Chairman Powell and the University of Michigan inflation expectations uptick from Friday last week. Already this Tuesday morning the US Dollar Index (DXY) was signalling a possible sell off as price action closed on Monday below the 55-day Simple Moving Average. The DXY is now trading in an airpocket which sees support only near 104.18
The DXY was looking for support near 105.00, and was able to bounce ahead of it earlier last week. Any shock events in global markets could spark a sudden turnaround and favour safe-haven flows into the US Dollar. A rebound first to 105.85 would make sense, a pivotal level from March 2023. A break above could mean a revisit to near 107.00 and recent peaks printed there.
On the downside, 105.10 has been breached and is opening up a lot of room to the downside. A big air pocket is opening up with only 104.18 as the first big level, where the 100-day SMA can bring some support. Just beneath that, near 103.58, the 200-day SMA should provide similar underpinning.
Dot Plot FAQs
What is the Federal Reserve “Dot Plot”?
The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.
When does the Federal Reserve publish the “Dot Plot”?
The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.
Why is the “Dot Plot” important for markets?
The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.
How does data in the “Dot Plot” affect the US Dollar?
The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
