The US Dollar is showing strength ahead of the US trading session, with traders seeing a strong weekly Jobless Claims report. The US Dollar Index is back in its tight range, despite a previous breakout. After the recent Federal Reserve (Fed) meeting, the USD is trading at levels prior to the meeting and is even moving higher just before the US trading session. Fed Chairman Jerome Powell’s comments about rate cuts not becoming the new normal led to initial losses being pared back on Wednesday. Moving forward, economic data will play a key role in determining the size of rate cuts.
Economic data points are indicating that chances for another 50-basis-point rate cut are diminishing, with Jobless Claims coming in lower than expected at 219,000. The Philadelphia Manufacturing Index also showed growth at 1.7, surpassing expectations of a contraction. Despite these positive economic indicators, the US Dollar is facing downward pressure as traders navigate through the impact of the recent Fed meeting and the possibility of further rate cuts.
In response to the recent Fed rate decision, which included a 50-basis-point rate cut and projections for further cuts, equity markets are performing well. Stock indices in Japan, Europe, and the US are all showing gains. The CME Fedwatch Tool indicates a 65.0% chance of a 25 basis point rate cut at the next Fed meeting in November, while 35.0% is pricing in another 50-basis-point cut. The US 10-year benchmark rate is currently at 3.75%, higher than the previous day and further away from the recent low of 3.60%.
The US Dollar Index (DXY) is back within its range following a temporary dip outside the bandwidth. With the recent Fed rate cut and expectations for future easing, the Greenback is likely to face pressure towards the lower end of the range. Key levels to watch include 101.90 and 103.18 on the upside, and 100.62 and 99.58 on the downside. The index could see further movements based on economic data releases leading up to the November Fed meeting.
Monetary policy in the US is determined by the Federal Reserve, which aims to achieve price stability and full employment. Interest rate adjustments are the primary tool used by the Fed to control inflation and employment levels. Policy decisions made by the Federal Open Market Committee (FOMC) during its eight annual meetings can have a significant impact on the value of the US Dollar. Quantitative Easing (QE) and Quantitative Tightening (QT) are non-standard policy measures used by the Fed in special circumstances, with QE typically weakening the US Dollar and QT having a positive effect on its value.
