US Dollar advances as markets give up hopes of sooner cuts by the Fed

DXY Index is trading near 104.00, up for Thursday’s session.
Core PCE Price Index matched predictions.
Markets continue delaying rate cuts from the Fed, which favors the Greenback.

Patricio Martín FXStreet

The US Dollar Index (DXY) is trading near 104 and keeps gaining traction due to markets delaying rate cuts from the Federal Reserve (Fed). Datawise, Personal Consumption Expenditures (PCE) showed no surprises.

As long as the US does not show conclusive evidence of inflation coming down, the Fed won’t rush to cut rates. In addition, the markets are aligned with the bank’s forecasts and are now expecting 75 bps of easing in 2024, starting in June.

Daily digest market movers: US Dollar holds gains, PCE decelerated as expected in January

The US Bureau of Economic Analysis announced on Thursday that the inflation rate in the US, gauged by the yearly change in the Personal Consumption Expenditures (PCE) Price Index, fell to 2.4% in January from 2.6% in December.
The Core PCE Price Index climbed by 2.8% over the year, also meeting expectations.
As the US economy doesn’t show conclusive evidence of inflation coming down, the markets are pushing the start of easing to June, while the odds of a cut in March and May remain low.

Technical analysis: DXY Bulls make a move to reclaim 100-day SMA

The indicators on the daily chart reflect a positive shift in buying momentum. Initially, the Relative Strength Index (RSI) exhibits a positive slope, and being in positive territory indicates a strengthening bullish trend. However, the Moving Average Convergence Divergence (MACD) shows flat red bars, hinting toward potential bearish pressure, where selling activity might prevail, though not necessarily resulting in a trend shift.

In the broader technical landscape, despite the underlying bearish pressure that has pushed the pair below the 20-day Simple Moving Average (SMA), the positioning above the 100 and 200-day SMAs suggests that buyers still have the upper hand in this play.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Patricio Martín

FXStreet

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

AUD/USD tests six-week low as Trump rattles markets

The Aussie Dollar edges lower, some 0.25% against the Greenback on Tuesday as the market mood turned sour due to Trump's threats to retaliate against Iran after a helicopter was downed in the Strait of Hormuz. The AUD/USD trades at 0.7027 after testing a six-week low of 0.7005.

USD/JPY: Japanese Yen round-trips Tokyo's record intervention just in time for CPI

Six weeks ago Japan reportedly spent a record sum dragging this pair off exactly this shelf. On Tuesday, USD/JPY ground from an early low near 160.00 to a session high just shy of 160.50, its strongest level since the late April spike that triggered intervention, before settling just beneath the high into the close.

Gold slumps below $4,250 on renewed US-Iran tensions, US CPI data in focus

Gold price attracts some sellers to around $4,235, the lowest since March 23, during the early Asian session on Wednesday. The precious metal extends its downside on renewed tensions in the Middle East and rising expectations of a US interest rate hike this year. The release of the US May Consumer Price Index inflation data will be in the spotlight later on Wednesday.

Bitcoin sell-off pushes over 50% of circulating supply into loss, hinting at market bottom

Bitcoin dropped near $61,000 on Tuesday, with the latest sell-off pushing long-term market indicators toward levels historically associated with bear-market bottoms, according to a report by K33 Research.

When the chips are down, the AI tape starts to shake

The market came into Tuesday trying to sell investors the comforting ”Turnaround Tuesday” idea that Friday’s AI fracture was just another pothole on the road higher. By the close, that story had lost its bid. Monday’s dead cat bounce had done what dead cat bounces always do.

The US economy defies the rules: 100 days into the Oil shock and the recession signal is still missing

More than three months after the start of the Iran war and the resulting disruption to global energy markets, the US economy continues to display remarkable resilience. The conflict has triggered a sharp rise in Oil prices, reignited inflationary pressures and fueled widespread concerns about a potential economic slowdown.