- DXY rally sees minor pullback on Monday but is set to continue its upward journey this week.
- Fed maintains that only one rate cut is expected in 2024, conflicting with market expectations.
- US Treasury yields continued rising, gaining more than 1% on Monday.
On Monday, the US Dollar Index (DXY) experienced some pullback but maintained overall strength. Tracking the previous week's performance, the DXY was influenced by the hawkish Federal Reserve (Fed) and the risk-off impulses from Europe. These two driving factors are expected to continue influencing the Index, allowing the US Dollar rally to proceed. It's worth noticing that the Index, on Friday, closed at its highest level since early May and is expected to retest the April-May highs near 106.50.
The US economic outlook persists in a state of ambiguity. The Fed continues to keep its economic indicator projections unchanged but revised its forecast for Personal Consumption Expenditures (PCE) higher. Primarily, soft inflation levels combined with a robust labor market illustrate the mixed dynamic of the US economic landscape.
Daily digest market movers: DXY slightly pulls back after strong week
- Fed perceives only one rate cut in 2024 compared to the market's prediction of two. This discrepancy will be influenced heavily by emerging financial data.
- Investors are awaiting critical reports, namely June's Consumer Price Index (CPI) and PCE, which will be key for timing of interest rate cuts. The odds of a cut at the July meeting remain low at 10%.
- An upcoming cut will also depend on July’s CPI and PCE, ahead of the Fed's meeting on September 17-18. The odds for a rate cut at this meeting are currently near 75%.
- US Treasury yields are following an uptrend, with the 2, 5 and 10-year yields reported at 4.47%, 4.30%, and 4.28%, respectively, with large gains.
DXY technical analysis: Bulls pause, outlook still positive
The technical indicators presented a pause in Monday's session but maintained an overall positive standpoint. The Relative Strength Index (RSI) continues to hold above the 50 level, and the Moving Average Convergence Divergence (MACD) continues to present green bars. This implies that the bulls remain strong, which leaves the door open for additional gains.
Furthermore, the DXY remains above its 20, 100 and 200-day Simple Moving Averages (SMA), which combined with investors taking a breather supports a bullish stance for the DXY.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD eases to daily lows near 1.0260
Better-than-expected results from the US docket on Friday lend wings to the US Dollar and spark a corrective decline in EUR/USD to the area of daily lows near 1.0260.
GBP/USD remains under pressure on strong Dollar, data
GBP/USD remains on track to close another week of losses on Friday, hovering around the 1.2190 zone against the backdrop of the bullish bias in the Greenback and poor results from the UK calendar.
Gold recedes from tops, retests $2,700
The daily improvement in the Greenback motivates Gold prices to give away part of the weekly strong advance and slip back to the vicinity of the $2,700 region per troy ounce at the end of the week.
Five keys to trading Trump 2.0 with Gold, Stocks and the US Dollar Premium
Donald Trump returns to the White House, which impacts the trading environment. An immediate impact on market reaction functions, tariff talk and regulation will be seen. Tax cuts and the fate of the Federal Reserve will be in the background.
Hedara bulls aim for all-time highs
Hedara’s price extends its gains, trading at $0.384 on Friday after rallying more than 38% this week. Hedara announces partnership with Vaultik and World Gemological Institute to tokenize $3 billion in diamonds and gemstones
Trusted Broker Reviews for Smarter Trading
VERIFIED Discover in-depth reviews of reliable brokers. Compare features like spreads, leverage, and platforms. Find the perfect fit for your trading style, from CFDs to Forex pairs like EUR/USD and Gold.