U.S. Dollar Gains Momentum: Attention Turns to Inflation Data

Following a recent surge, the DXY Index has shown signs of retracement amidst a flurry of U.S. economic data releases. Notably, December’s Non-Farm Payrolls (NFPs) surpassed expectations, accompanied by an uptick in Average Hourly Earnings, even as the Unemployment Rate remained steady at 3.7%. However, the Services ISM Purchasing Managers’ Index (PMI) for the same period fell short of forecasts, introducing a note of caution amid an otherwise optimistic backdrop.

The U.S. Dollar (USD), as gauged by the Dollar Index, is presently hovering just above the 102.40 mark, experiencing minor declines in response to a shift in market sentiment following the unveiling of December’s Nonfarm Payrolls (NFP) and ISM PMI figures.

Reflecting on insights from the Federal Reserve’s final 2023 meeting, a decidedly dovish tone emerged. The Fed conveyed a sense of ease regarding moderating inflationary pressures and outlined a cautious trajectory, indicating no anticipated rate hikes until 2024 and potentially signaling a reduction by 75 basis points. Current market sentiment aligns with projections of an impending rate reduction in March, followed by another in May. This outlook casts a shadow over the USD, as diminished interest rates may divert capital flows towards markets offering more attractive yields.

Technical Insights: DXY Index Sellers Regain Control as Bullish Momentum Wanes

The Dollar Index has been favoring bearish trends since early November, following a breakout from consolidation near the 106 level. During this period, the Relative Strength Index (RSI) has consistently remained in negative territory, showing no signs of a rebound. However, from the end of last year to the present week, the Dollar Index has started to rebound from the $101 price level. This bullish momentum persisted, culminating in a favorable close above the 20-day moving average. As we look ahead to the upcoming week, a significant battle between demand and supply dynamics is anticipated.

Get free access to our lifetime VIP membership. Join us here.