US dollar falls as markets wait for drivers, FOMC minutes
- The DXY index is trading slightly lower, showing weakness as the US returns from vacation.
- No related reports have been released while the market waits for a new catalyst.
- All eyes now turn to the FOMC minutes from Wednesday’s January Federal Reserve meeting.
The US dollar (USD), as measured by the DXY index, is trading slightly lower at 104.05, with no relevant highlights seen in the European and US sessions.
Despite the post-holiday decline, the greenback’s position remains firm amid a resilient US economy and a seemingly unwavering Federal Reserve. The Fed’s reluctance to resort to monetary easing may ultimately limit the dollar’s losses.
Daily Digest Market movers: The U.S. dollar fell slightly ahead of the FOMC meeting minutes.
- Markets are waiting for a new driver to continue timing the start of the Fed’s easing cycle. The FOMC’s January meeting minutes are due Wednesday.
- Market expectations are also growing for upcoming speeches by Fed representatives Bowman (Wednesday) and Kashkari (Thursday) to gather additional insights.
- According to the CME FedWatch Tool, the likelihood of a Fed rate cut at the March and May meetings has decreased significantly as markets have pushed back the expected start of easing until June.
Technical Analysis: DXY is giving up its 100-day SMA and more downside could be coming soon.
Daily chart indicators reflect a somewhat conflicting picture of the current technical landscape. Even though the Relative Strength Index (RSI) is in positive territory, its negative slope suggests weakening bullish momentum and potential downside risks. At the same time, the green bar on the Moving Average Convergence Divergence (MACD) histogram is decreasing, indicating a slowing of buying pressure and a potential shift in sentiment.
Moreover, despite the pair trading above the 20-day and 200-day simple moving averages (SMAs), which traditionally suggest a bullish stance, the strength of the uptrend is questionable as the bulls struggle to effectively consolidate above the 100-day average. . .
Inflation FAQ
Inflation measures the rise in prices of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes volatile factors such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the measure that economists focus on and the level central banks aim to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures changes in prices for a basket of goods and services over a period of time. It is typically expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the number central banks target because it excludes volatile food and fuel inputs. A rise in core CPI of more than 2% will generally result in higher interest rates, and the opposite will apply if it falls below 2%. Higher interest rates are positive for a currency, so higher inflation generally makes the currency stronger. The opposite is true when inflation falls.
It may seem counterintuitive, but high inflation in a country increases the value of its currency and vice versa, which leads to lower inflation. This is because central banks typically raise interest rates to combat high inflation. This is leading to more global capital inflows from investors looking for a profitable place to park their money.
Previously, gold was an asset that investors relied on because it preserved its value in times of high inflation, and while investors will often purchase gold as a safe haven asset in times of extreme market turmoil, this is not the case in most cases. . This is because when inflation is high, the central bank raises interest rates to prevent it.
Higher interest rates are negative for gold because they increase the opportunity cost of holding gold or keeping money in a cash savings account compared to interest-bearing assets. On the other hand, lower inflation tends to be positive for gold because it lowers interest rates, making the bright metal a more viable investment alternative.
Source: https://www.fxstreet.com/news/us-dollar-trades-in-the-red-as-us-traders-return-from-mondays-holiday-202402201843
