On Thursday, the US Dollar Index (DXY) experienced volatility as mixed economic data was released from the United States. While the labor market showed signs of weakness, the services sector displayed strong figures.

Investors are now speculating on a larger rate cut in September due to the mixed economic outlook in the US.

Daily Market Recap: US Dollar Weakens on Labor Data, Expectations of Dovish Policy

  • ADP Employment Change fell to 99,000 from 122,000, missing estimates.
  • Initial Claims decreased to 227,000 from 232,000, while Continuing Claims also fell.
  • Nonfarm Productivity saw a slight increase, while Labor Cost fell.
  • S&P Global’s Services PMI and Composite PMI rose, while ISM’s Services PMI improved slightly.
  • The Employment Index in the ISM Services PMI declined, indicating a cooling labor market.
  • CME Fedwatch Tool predicts a 55% chance of a rate cut in September.

DXY Technical Analysis: Bearish Momentum Continues, Support at 100.50 Level

The DXY index’s technical indicators suggest continued bearish momentum, with support levels at 100.50, 101.30, and 101.15. Resistance levels are at 101.80, 102.00, and 102.30.

RSI and MACD indicators also indicate bearish momentum, remaining in negative territory.

Understanding the US Dollar: Impact of Monetary Policy on USD Value

The US Dollar is the most traded currency in the world and is heavily influenced by the Federal Reserve’s monetary policy. The Fed’s interest rate decisions play a crucial role in determining the value of the USD.

When the Fed raises interest rates to control inflation, the USD value strengthens. Conversely, lowering interest rates to stimulate the economy can weaken the Greenback.

In extreme cases, the Fed may resort to quantitative easing (QE) to boost credit flow, leading to a weaker USD. Quantitative tightening (QT) is the opposite process, strengthening the USD.

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