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US Dollar starts the week strong with Retail Sales on the horizon

  • US Dollar finding buyers as markets are pricing in fewer cuts in 2024.
  • Thursday’s Retail Sales will be key for market bets.
  • Strong US data later in the week could continue pushing the DXY higher.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, continues rising as markets are giving up their hopes of two cuts by the Federal Reserve (Fed) this year.

The US economy displays mixed signals, exhibiting both signs of a slowdown and resilience. The Fed has indicated that it will monitor incoming data to adjust the pace of its monetary easing policy accordingly.

Daily digest market movers: US Dollar adds more ground on quiet Monday

  • Fed easing expectations tempered by strong jobs and CPI data with fewer rate cuts priced in.
  • Fed speakers hold cautious stance on rate cuts and remain data-dependent.
  • Headline September CPI rose as expected last week, while core CPI was slightly higher than anticipated.
  • The super core rate remained unchanged at 4.3% YoY, indicating persistent price pressure.
  • US Retail Sales data on Thursday is projected to show continued consumer spending strength supported by favorable economic conditions.
  • Business inventories and industrial production reports on Thursday will provide insight into overall economic activity.

DXY technical outlook: DXY maintains bullish momentum, approaching overbought conditions

The DXY index maintains upward momentum with indicators suggesting overbought conditions near the crucial 100-day SMA. That being said, the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are approaching overbought territory, signaling a potential pullback.

Supports are located at 103.00, 102.50 and 10.30, while resistances are found at 103.30, 103.50 and 104.00.

Fed FAQs

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.

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.

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.

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

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

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