US Dollar holds steady as markets look to Fed decision
- The DXY trades slightly lower on Monday.
- Markets digest recent inflation data and strong S&P PMIs figures.
- Attention shifts to Wednesday’s Fed rate decision.
The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, trades slightly lower on Monday after a string of data and headlines placed added attention on the upcoming Federal Reserve (Fed) rate decision. The Greenback eases off last week’s strong rally as Chinese economic data and stimulus measures bolster risk appetites.
Despite these developments, rising US Treasury yields help limit losses for the US Dollar, even as the market has priced in a cut on Wednesday. Overall, the currency remains sensitive to incoming data and central bank cues.
Daily digest market movers: US Dollar softens as markets parse hot inflation and solid growth
- The US Dollar shows weakness on Monday even as the S&P Global Composite PMI rose to 56.6 in December from 54.9, while the Services PMI improved to 58.5 from 56.1. The Manufacturing PMI dipped to 48.3, highlighting a mixed backdrop ahead of the Fed decision.
- Regarding last week’s data, the November Producer Price Index (PPI) rose 3.0% YoY, exceeding the 2.6% expectation with a revised 2.6% for October (previously 2.4%).
- Core PPI, excluding food and energy, climbed to 3.4% YoY, beating the 3.2% forecast, and October’s figure was revised to 3.4% (was 3.1%).
- Consumer Price Index data released last week showed signs of persistent price pressure, doing little to ease policymakers’ inflation concerns.
- Despite the higher inflation data, markets fully price in a 25-basis-point Fed cut this week, with officials likely delivering a “hawkish cut” that sets the stage for a pause in January.
DXY technical outlook: Indicators rebound but face tough resistance
Indicators recovered significant ground last week but may lack the momentum to break above the 107.00-108.00 zone. On Monday, the Index has retreated from recent highs, reflecting a pause after last week’s rally.
Still, the outlook remains constructive if the DXY can hold above its 20-day Simple Moving Average (SMA). With mixed data and a pivotal Fed decision looming, traders may remain cautious, awaiting clearer directional cues before pushing the US Dollar materially higher.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from the Bank for International Settlements. Following the Second World War, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold until the Bretton Woods Agreement in 1971, when the Gold Standard went away.