US Dollar downside attempts remain limited with all eyes on the Fed
- The USD bounces up from session lows and resumes its broader positive bias.
- FX markets are hesitant with investors awaiting Wednesday's Fed decision..
- DXY: Below 104.55, the next targets are 1.0405 and 1.0365.
The US Dollar (USD) has bounced up from previous resistance levels during Tuesday's European trading session, to resume the bullish trend observed in the last two weeks. Investors' however, are likely to remain wary of placing directional bets ahead of Wednesday’s Federal Reserve (Fed) interest rate decision.
The bank will highly likely leave rates unchanged, but the recent inflation and labor data might prompt Fed Chair Jerome Powell to deliver a more dovish message. The bank’s latest dot plot suggested only a 25 bps cut, probably in December, but the market is betting on two rate cuts, starting in September, and recent data supports that view. Any hint in that direction would increase negative pressure on the US Dollar.
Before that, the JOLTS Job Openings for June and the Conference Board’s Consumer Sentiment Index for July, due on Tuesday, are expected to show moderate contractions, which will provide the right framework for a dovish message from the central bank.
Daily digest market movers: US Dollar loses steam amid as risk aversion eases
- The US Dollar has resumed its positive trend on Tuesday's European session after a moderate pullback earlier on the day, triggered by a moderate improvement of the risk sentiment. .
- Israeli authorities have affirmed that they are willing to avoid an all-out war in the Middle East. This has calmed markets, which are wary that the reaction would attract a direct involvement of Iran in the conflict.
- In the economic calendar on Tuesday, the US JOLTS Job Openings are expected to have dropped slightly, to 8.03 million in June from 8.14 million in May.
- Also today the Conference Board’s Consumer Sentiment Index is seen contracting to 99.5 in July from the 100.4 posted in the previous month.
- The main focus, however, is the Fed’s monetary policy meeting. Data from the CME Group Fed Watch Tool shows that markets are pricing only a 4.1% chance of an interest rate cut on Wednesday, while a 25 bps rate cut is fully priced for September.
- Data released last week showed that the US Personal Consumption Expenditures (PCE) Prices Index ticked down in June, although the core PCE remained at 2.6% year-over-year. This reading is close to the bank’s 2% inflation target and maintains hopes of a September rate cut alive.
DXY Technical Outlook: The strong rebound from 104.55 puts bulls back in control
The US Dollar Index (DXY) reversal has been capped at a previous resistance, at 104.55. The pair is going through a strong recovery with the 4-hour chart forming a bullish engulfing candle. A positive signal. The next target is 104.80, above here, 105.20 is next.
On the downside, the mentioned 104.55 support is closing the path towards 104.05 back and 103.65.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | 0.23% | 0.60% | 0.04% | 0.19% | -0.16% | 0.06% | |
| EUR | -0.12% | 0.11% | 0.52% | -0.06% | 0.06% | -0.28% | -0.05% | |
| GBP | -0.23% | -0.11% | 0.42% | -0.16% | -0.03% | -0.37% | -0.16% | |
| JPY | -0.60% | -0.52% | -0.42% | -0.58% | -0.43% | -0.78% | -0.55% | |
| CAD | -0.04% | 0.06% | 0.16% | 0.58% | 0.15% | -0.20% | 0.00% | |
| AUD | -0.19% | -0.06% | 0.03% | 0.43% | -0.15% | -0.35% | -0.15% | |
| NZD | 0.16% | 0.28% | 0.37% | 0.78% | 0.20% | 0.35% | 0.22% | |
| CHF | -0.06% | 0.05% | 0.16% | 0.55% | -0.01% | 0.15% | -0.22% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
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
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
