- The DXY Index rose to 103.60, up by 0.15%.
- FOMC members considered that the progress on inflation is "limited".
- The US yields are still down on the day, limiting the US Dollar's advance.
In Tuesday’s session, the US Dollar Index traded with 0.15% gains around the 103.60 area as investors seemed to be spooked by the hawkish tone of the Federal Open Market Committee (FOMC) participants in the November minutes.
Recently, the US economy has shown indications of cooling inflation and a slowing labor market, leading to a positive response from markets in anticipation as they now are confident that the Fed won’t hike any more, significantly weakening the US Dollar and Treasury yields. The November minutes revealed that the bank needs to see "more" evidence of inflation cooling down to call it a victory and that the progress made on inflation was limited which provided some lift to the Greenback and turning somewhat the market's hype.
Daily Digest Market Movers: US Dollar finds demand on hawkish minutes, focus shifts to economic data
- The US Dollar DXY Index rose towards 103.60.
- As FOMC members need to gather more evidence of inflation cooling down, the focus shifts to the next high-tier reports. Before the December meeting, the Fed will receive an additional job and inflation report from November which will likely set the pace of the next decisions.
- The 2, 5 and 10-year rates are still down on the day at 4.88%, 4.42% and 4.43%, respectively, which limit the Greenback’s upside.
- In the meantime, according to the CME FedWatch Tool, investors have already priced in a no hike in December and are betting on rate cuts sooner than expected in May 2024. A sizable minority is even betting on a rate cut in March.
- The US will release October's Durable Goods data on Wednesday and November's S&P Global PMIs on Friday.
Technical Analysis: US Dollar bears take a break, RSI still near 30
On the daily chart, the Relative Strength Index (RSI) stands flat near the oversold threshold, while the Moving Average Convergence Divergence (MACD) lays out flat red bars. Both indicators point to the bears taking a slight break ahead of the Thanksgiving holiday.
On the broader scale, the index is below the 20, 100 and 200-day Simple Moving Averages (SMAs), suggesting that sellers are still in charge of the broader scale.
Support levels: 103.30, 103.15, 103.00.
Resistance levels: 103.60 (200-day SMA), 104.20 (100-day SMA),104.50.
Interest rates FAQs
What are interest rates?
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.
How do interest rates impact currencies?
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.
How do interest rates influence the price of Gold?
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.
What is the Fed Funds rate?
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.
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