US Dollar Index: A Weekly Review
- US Dollar Index clinches its third consecutive weekly decline.
- The Federal Reserve delivered a jumbo rate cut on September 18.
- A soft landing of the US economy appears well on the cards.
Pessimism surrounding the US Dollar (USD) persisted this week, driving the US Dollar Index (DXY) to new lows near 100.20 for the first time since summer 2023, marking its third consecutive weekly decline.
The weekly drop accelerated following the Federal Reserve’s surprising 50 basis-point rate cut on Wednesday, defying expectations for a more conventional quarter-point reduction. Additionally, the Greenback’s decline was compounded by a resurgence in risk-on sentiment, fueled by growing confidence in a soft landing for the US economy.
September’s price action highlights a strong resistance area just below the 102.00 level, with the broader bearish trend likely to continue as long as the DXY stays below the crucial 200-day Simple Moving Average (SMA) at 103.78.
Recession on the Horizon: Fact or Fiction?
Following the surprising rate cut in September, market participants are likely to shift their attention to assessing the US economy’s performance to better gauge the likelihood of additional rate cuts.
Federal Reserve Actions
- The Fed lowered its Fed Funds Target Range (FFTR) by 0.5 percentage points.
- Committee projections suggest rates could drop further before year-end.
Chair Jerome Powell argued against an imminent recession, citing solid growth, decreasing inflation, and a stable labor market. The likelihood of a recession is deemed low.
Investors are now pricing in about 50 basis points of further easing for the remainder of the year, with economic data playing a crucial role in shaping the Federal Reserve’s monetary policy decisions.
Monetary Policies Across the Globe
Various central banks are responding to deflationary pressures and economic uncertainties:
Global Central Banks Recap
- ECB: Executed second interest rate cut and maintains cautious outlook.
- SNB: Surprised markets with a 25-basis-point rate cut.
- BoE: Maintained policy rate unchanged at 5.00%.
- RBA: Held rates steady, signaling a hawkish stance.
- BoJ: Delivered a dovish hold with minimal tightening expectations.
Economics in the Political Arena
Election implications on the economy:
Election Impact
- Trump Victory: May reintroduce tariffs, impacting disinflationary trend and Fed rate cuts.
- Harris Administration: Potential tax hikes and Fed pressure on monetary policy if growth falters.
What’s Up Next Week?
Key events to watch for:
Upcoming Events
- Inflation Data: Personal Consumption Expenditures (PCE) index.
- Consumer Confidence Report: From the Conference Board.
- PMI Figures: Preliminary data from the US and abroad.
- GDP Growth Rate: Final estimate of Q2 GDP growth.
Techs on the US Dollar Index
Technical analysis insights:
Technical Analysis
- Support Levels: YTD low of 100.21, 200-week SMA at 100.46.
- Resistance Levels: September high of 101.91, 55-day SMA at 102.66.
The Relative Strength Index (RSI) suggests a potential short-term bounce, while the Average Directional Index (ADX) indicates a moderately strong downtrend.
Economic Indicator: Gross Domestic Product Annualized
The real Gross Domestic Product (GDP) Annualized, released quarterly by the US Bureau of Economic Analysis, measures the value of the final goods and services produced in the United States. Changes in GDP signify the nation’s economic health, with high readings considered bullish for the US Dollar.
For more FAQs on the US Dollar, refer to the additional information below.