The US Dollar Index Continues to Decline
- US Dollar Index clinches its fourth weekly drop in a row.
- Investors price in around 75 bps of easing by year-end.
- NFP and Chair Powell grab all the attention next week.
This week, the US Dollar Index (DXY) hit new lows near the crucial 100.00 level, marking its weakest point since the summer of 2023. The downward trend for the USD persisted despite the Federal Reserve’s unexpected significant rate cut on September 18.
Factors Driving the USD Downtrend
Speculation of further rate cuts at upcoming Federal Reserve meetings, combined with positive sentiments towards a soft landing for the US economy, are contributing to the ongoing pressure on the US Dollar. As long as the DXY remains below the critical 200-day Simple Moving Average (SMA) at 103.73, the bearish trend is likely to continue.
Key Highlights:
- The USD faces strong resistance near the 102.00 level.
- Risk-sensitive markets are maintaining a positive tone.
- Concerns about a global economic slowdown impact the USD’s performance.
Assessing the US Economy and Fed’s Actions
Following the Fed’s unexpected rate cut in September, market participants are closely monitoring the US economic performance to gauge the potential for further rate reductions. The recent 0.5 percentage point decrease in the Fed Funds Target Range (FFTR) to 4.75%-5.00% was described as a necessary measure to support economic momentum.
Key Points to Note:
- Fed Chair Jerome Powell expressed confidence in the economy’s stability.
- Investors are anticipating additional rate cuts totaling around 75 basis points by year-end.
- Economic data will play a crucial role in shaping the Fed’s future monetary policies.
Global Interest Rate Trends
Several major economies, including the Eurozone, Japan, Switzerland, and the UK, are facing deflationary pressures, leading central banks to adjust their interest rates accordingly. The ECB, SNB, and BoE have already implemented rate changes, with more expected in the coming months.
Key Observations:
- The RBA in Australia maintains a hawkish stance.
- The BoJ in Japan remains dovish with minimal tightening predicted.
Political Impact on Economic Policies
The upcoming US election could influence economic policies significantly. Potential changes in leadership may lead to shifts in trade tariffs, tax policies, and monetary strategies, impacting the USD’s performance and the Fed’s decision-making process.
Key Insights:
- Policy differences between candidates could alter economic trajectories.
- The election outcome may determine the pace of Fed rate cuts.
Upcoming Economic Events
Next week, key economic reports, including the Nonfarm Payrolls (NFP), ADP report, and ISM data, will provide insights into the US labor market and economic conditions. These releases will be closely watched by investors and policymakers alike.
Important Data Points:
- NFP report to be a focal point for market reactions.
- ADP report and ISM data to provide additional market indicators.
Technical Outlook for the USD Index
The USD Index faces downward pressure, with key support levels and resistance zones shaping its future trajectory. Technical indicators suggest potential movements in the USD based on recent price actions and market sentiment.
Technical Analysis Highlights:
- Support levels at 100.15 and 99.57 could trigger further USD declines.
- Resistance levels at 101.91, 102.28, and 103.54 may limit USD gains.
Overall, the USD’s performance is closely tied to economic data, global trends, and political events, shaping its future outlook and influencing investment decisions.