The US Dollar’s Future Hangs in the Balance
- The US Dollar Index (DXY) is feeling the heat as uncertainty looms over the Fed rate cut decision.
- Investors are holding their breath awaiting the outcome and Fed Chair Powell’s remarks.
- DXY retraces its steps on Wednesday, signaling nervousness in the markets.
The US Dollar is currently trading below 101.00, as indicated by the US Dollar Index (DXY), in anticipation of the upcoming US Federal Reserve (Fed) interest rate announcement. The DXY is near its yearly lows and faces a critical juncture as the Federal Open Market Committee (FOMC) deliberates on the magnitude of the interest rate adjustment. The market’s focus will shift to Fed Chair Jerome Powell’s speech, the Summary of Economic Projections (SEP), and the Fed’s Dot Plot, where FOMC members share their views on the future of the Fed policy rate. The number of projected rate cuts could significantly impact market expectations.
Daily Digest Market Movers: What to Watch For
- The release of monthly Building Permits and Housing Starts data at 12:30 GMT will be pivotal for market sentiment.
- At 18:00 GMT, the Fed will announce its Interest Rate Decision, Monetary Policy Statement, and the Summary of Economic Projections.
- Fed Chair Jerome Powell’s statements and Q&A session at 18:30 GMT will provide further insights into the Fed’s decision-making process.
- Asian equities are performing well, European equities are slightly down, and US Futures are steady ahead of the Fed’s announcement.
- According to the CME Fedwatch Tool, the probability of a 25 basis points interest rate cut stands at 37.0%, while the likelihood of a 50 bps cut is at 63%.
- The US 10-year benchmark rate is currently at 3.68%, bouncing back from a 15-month low of 3.60%.
US Dollar Index Technical Analysis: What Lies Ahead?
The US Dollar Index (DXY) is at a crossroads, with the potential to either break out of its current range or maintain its consolidation phase. The Fed’s decision will be the key driver in determining the DXY’s next move. With divergent opinions on the rate cut size, a volatile reaction could keep the DXY within its tight range of 100.62 to 101.90.
On the upside, breaching the upper range could lead to a significant uptrend, aiming for levels around 103.18 and beyond. Conversely, a downward move below 100.62 could open the door to lower levels, with support at 99.58 and potentially 97.73.
US Dollar Index: Daily Chart
Fed FAQs: Understanding the Federal Reserve
- Monetary policy in the US is shaped by the Federal Reserve (Fed) to achieve price stability and full employment.
- The Fed conducts eight policy meetings a year, where decisions on interest rates and economic conditions are made by the Federal Open Market Committee (FOMC).
- Quantitative Easing (QE) is a policy tool used by the Fed during crises to increase credit flow, weakening the US Dollar.
- Quantitative Tightening (QT) is the opposite of QE, typically strengthening the US Dollar.