US Dollar starts the week with the left foot, declines to multi-month lows

DXY Index trades with mild losses at 103.25, falling to its lowest point since August 31.
The US reported mixed housing market data on Monday.
All eyes are on PCE data from October to be reported on Thursday.

Patricio Martín FXStreet

The US Dollar (USD) Index hovers at 103.25 with nearly 0.15% losses. The Greenback remains vulnerable due to dovish speculation on the Federal Reserve's future movements, and markets brace for Thursday's Personal Consumption Expenditures (PCE) figures, the Federal Reserve's (Fed) preferred inflation gauge. On the data front, October's reports of New Home Sales and Building Permits, released during the session, did not impact the USD’s dynamics.

Amid cooling labour market performance and inflation in the United States economy, the markets are betting on a dovish Federal Reserve, which has weakened the US Dollar. Before the December meeting, where markets will get clear guidance, investors will get October’s PCE figures, an additional jobs report, and the November Consumer Price Index (CPI). These releases will likely set the pace for the next movements of the US Dollar..

Daily Market Movers: US Dollar trades weak; markets await guidance on October PCE inflation figures

The US Dollar navigates a neutral range, susceptible to looming PCE inflation figures and dovish bets on the Fed.
On the data front, October registered a downturn in New Home Sales, coming short of the expected 725K with an actual figure of 679K, as reported by the US Census Bureau.
A bright spot in October was the Building Permits figure, which exceeded both previous and predicted numbers at 1.498 million.
The tables have turned for US bond yields, which are witnessing a downturn to start the week with 2-year, 5-year and 10-year yields standing at 4.92%, 4.44% and 4.42%, respectively, now limiting the USD’s advance.
According to the CME FedWatch Tool, markets are pricing in a no-hike at the December meeting. Rate swaps futures see rate cuts in mid-2024.

Technical Analysis: US Dollar faces headwinds as bearish trend persists

The Relative Strength Index (RSI) indicates that the US Dollar is trading near oversold territory. This suggests that the selling pressure is excessive, hence the prevailing bearish momentum. Additionally, the Moving Average Convergence Divergence (MACD) histogram shows the MACD line is below the signal line, providing evidence of a potential bearish reversal.

Adding to the bearish case, the currency pair remains under the shield of its 20, 100 and 200-day Simple Moving Averages (SMAs), indicating that bulls are having a tough time wresting control from bears. With the pair beneath the SMAs, a continuation of the downtrend could be on the cards.

Support levels: 103.20, 103.10, 103.00.
Resistance levels: 103.60 (200-day SMA), 104.00, 104.20 (100-day SMA)

GDP FAQs

What is GDP and how is it recorded?

A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.

How does GDP influence currencies?

A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.

How does higher GDP impact the price of Gold?

When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.

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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