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US Dollar secures gains as eyes flick to Fed decision and its messaging

  • The two-day FOMC meeting kicks off on Tuesday with a hold priced in for Wednesday’s interest rate decision.
  • US consumer sentiment declined in April, while Q1 Employment Cost Index increased.
  • Hawkish bets on the Fed continue to favor the USD.


The US Dollar Index (DXY) is presently trading higher at 105.95,  while the two-day Federal Reserve (Fed) meeting kicked off. Markets are expecting a hawkish hold by the central bank, but messaging by Jerome Powell will be key. On Tuesday, positive mid-tier data is acting as a tailwind for the Greenback.

The US economy is witnessing resilience and persistent inflation, which makes a case for a hawkish hold by the Federal Open Market Committee (FOMC), which will likely show their lack of confidence in the progress being made. 

Daily digest market movers: DXY rises as markets gear up for Fed decision, mid-tier data supports Greenback

  • Conference Board's Consumer Confidence Index in the US dropped in April to the lowest level since July 2022, at 97.0, falling from March’s figure of 103.1. 
  • Elsewhere, the Employment Cost Index in the US rose by 1.2% YoY in the first quarter.
  • Market expectations show a 10% chance of a rate cut in June by the Fed, with odds decreasing to 33% for July, and remaining below 75% for September. 
  • For Wednesday, there are growing expectations for a hawkish surprise due to key Fed officials advocating for patience before initiating easing measures.

DXY technical analysis: DXY recovers as bulls make a stride, bears around the corner

The technical outlook of DXY indicates predominantly bullish momentum. The Relative Strength Index (RSI) presents a positive slope in positive territory, indicating the dominance of the buying side. The flat green bars viewed in the Moving Average Convergence Divergence (MACD) align closely with this bullish sentiment but warn of flattening momentum.

That being said, the index remains above its 20, 100, and 200-day Simple Moving Averages (SMAs). This points consistently toward a dominating bullish backdrop. Hence, even as short-term challenges are dense, the larger trend appears to lean in favor of bulls.

Interest rates FAQs

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.

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.

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.

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

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

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