US Dollar closes its best week since September on the back of strong NFPs,eyes on CPI

  • The DXY Index rose above the 20-day SMA towards 104.05 and will close a 0.75% winning week.
  • US NFPs from November accelerated, as did Average Hourly Earnings. The Unemployment Rate declined.
  • US is set to report CPI inflation next Tuesday.

The US Dollar (USD) continued to command the financial markets as it soared to the 104.05 mark, primarily because of positive labor market figures and a surge in yields, which suggests that markets are delaying rate cuts in 2024. The gains for the USD Index (DXY) were fueled by economic reports from November, prominently Average Hourly Earnings, Unemployment Rate and Nonfarm Payrolls, all of which collectively fuelled hawkish bets on the Federal Reserve (Fed). 

Moderating US inflation figures from October fuelled dovish expectations regarding the Federal Reserve's stance at the beginning of November. However, Fed officials' signals considering further tightening are dampening these expectations, and strong labor market data reaffirms this cautious stance by the bank, which is requesting further evidence on the economy cooling down. The upcoming inflation data from November and the Fed meeting next week will be critical determinants for the USD’s short-term trajectory.

Daily Market Movers: US Dollar rising on the strength of labor market data 

  • The US dollar is making gains today, riding on a wave of strong labor market data and climbing yields. 
  • According to the US Bureau of Labor Statistics, November's Average Hourly Earnings MoM figures revealed a better-than-expected increase of 0.4%, exceeding both consensus and previous numbers of 0.3% and 0.2%, respectively.
  • The Nonfarm Payrolls for November showed 199K new jobs were added to the US economy, surpassing consensus expectations of 180K and the preceding number of 150K jobs.
  • The Unemployment Rate came in at 3.7%, lower than the anticipated figure of 3.9%. 
  • US bond yields are rising, with rates for 2-year, 5-year and 10-year bonds rising to 4.72%, 4.24%, and 4.23%, respectively.
  • As per the CME FedWatch Tool, the market expects no rate hike in the December Fed meeting but anticipates less easing in 2024.
  • Next week will see Tuesday's release of the Headline and Core Consumer Price Index (CPI) for November, which will likely shape the expectations for the next Fed decisions.

Technical Analysis: US Dollar bulls step in, but bears are still in command

The indicators on the daily chart reflect a short-term conflicted landscape for the US Dollar. The Relative Strength Index (RSI) position is on a positive slope, albeit in negative territory. This signals growing buying momentum, but it isn't robust enough to draw a definitive recovery. On the other hand, the histogram of the Moving Average Convergence Divergence (MACD) indicator paints a similar picture with green bars, which suggests that the selling pressure is declining. 

Regarding the Simple Moving Averages (SMAs), the index sits above the 20-day SMA, yet below the 100-day SMA. Nonetheless, with respect to the 200-day SMA, it is clear that the index is operating in a generally bullish zone. 

The resilience of bulls, in combination with bears taking a breather, insinuates that the selling force could be losing dominance over the buying force. However, the US Dollar Index needs to make a sustained move above the 100-day SMA for a change in the prevailing selling momentum. Until then, the overall technical outlook remains tentatively balanced toward the downside.

Support levels: 104.00 (20-day SMA), 103.50, 103.30.
Resistance levels: 104.40 (100-day SMA), 104.50,104.70.




Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Share: Feed news

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

Recommended content

Editors’ Picks

EUR/USD slides to multi-month lows below 1.0650

EUR/USD slides to multi-month lows below 1.0650

EUR/USD stays under heavy bearish pressure and trades at its lowest level since November below 1.0650. Divergent ECB-Fed policy outlooks and the risk-averse market atmosphere keep the US Dollar strongly bid and weigh on the pair.


GBP/USD extends decline below 1.2450 on sustained USD strength

GBP/USD extends decline below 1.2450 on sustained USD strength

GBP/USD extends losses and trades at fresh multi-month lows below 1.2450 even after the January month UK GDP was revised higher to 0.3%. The negative shift seen in risk mood fuels another leg higher in the USD and drags the pair lower.


Gold advances to new historic high above $2,400

Gold advances to new historic high above $2,400

Gold gathers bullish momentum ahead of the weekend and trades at a new record high above $2,400. Escalating geopolitical tensions help XAU/USD continue to push up despite the broad-based US Dollar strength.

Gold News

Robert Kiyosaki steers clear from ETFs, opts for holding Bitcoin directly instead

Robert Kiyosaki steers clear from ETFs, opts for holding Bitcoin directly instead

Rich Dad Poor Dad author Robert Kiyosaki says he will not buy Bitcoin ETFs. Kiyosaki stated his dislike for Wall Street’s financial products and preferred packaging his own. 

Read more

Week ahead – More inflation data on the way as rate cut bets thrown into disarray

Week ahead – More inflation data on the way as rate cut bets thrown into disarray

CPI numbers due in the UK, Japan, Canada and New Zealand. China to also come into the spotlight as Q1 GDP eyed. US retail sales to kickstart the week as earnings season gets underway.

Read more