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- Dollar falls after US CPI release,
- Markets are focused on falling underlying inflation.
- The dollar index is falling and entering negative territory this week.
He US dollars (USD) is trending downward and losing ground to most major competitors. During Tuesday’s session, operators had already erased previous losses from Monday ahead of the release of the United States Consumer Price Index (CPI). The markets are falling and the USD is losing strength.
As mentioned above, traders have focused on core inflation excluding food and energy, which fell from 4.7% to 4.3%. Markets are ignoring the fact that energy is becoming an inflationary force again as the overall index rises from 3.2% to 3.7%.
Daily Roundup: US Dollar Content
- While awaiting US inflation numbers, operators across the Atlantic have cemented the possibility of another ECB hike in 2023, while no hikes were expected just a few days ago.
- On Wednesday we return to the usual schedule: at around 2:30 p.m. GMT, the US Energy Information Administration (EIA) will release its latest figures on crude oil inventory movements. A smaller decline is expected from 6,307 million to 1,912 million barrels less.
- Yields are expected to be supported again, this time by a 30-year bond auction that the US Treasury will hold in markets around 5:00 p.m. GMT.
- CME Group’s FedWatch tool shows that markets are pricing in a 93 percent chance that the Federal Reserve will leave interest rates unchanged at its September meeting.
- The 10-year U.S. Treasury yield is at 4.29% and remains elevated after Monday’s decline.
Dollar Index Technical Analysis: The Possible Beginning of the End
The dollar is falling, but without really reporting any significant movements. It appears that markets initially reacted to weakness in annual core inflation and pushed the US Dollar Index (DXY) lower. As the dust settles, it looks like inflation is actually holding steady at slightly higher levels and energy is back in inflation territory, and I would imagine the DXY will rise again later in the US session this Wednesday tends upwards.
The new high to watch is 105.16, both last Thursday’s high and the six-month high. First, the dollar index needs to regain lost ground this Monday and break through the high of 104.93. Beyond 105.16, the next level to watch is 105.88, the 2023 high.
On Monday, the 104.44 level remained calm, preventing the DXY from further sell-off. The August 25 high served its purpose and acted as a reference level. If this Tuesday’s rally reverses and hits 104.44, there could be a significant decline to 103.04, where the 200-day SMA comes into play as support.
Frequently asked questions about the US dollar
He US dollars (USD) It is the official currency of the United States of America and the “de facto” currency of a significant number of other countries where it circulates alongside local banknotes. According to 2022 data, it is the most traded currency in the world, accounting for more than 88% of all global foreign exchange transactions, an average of $6.6 trillion in daily transactions.
After the Second World War, the USD replaced the pound sterling as the world reserve currency.
The most important factor affecting the value of the US dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two missions: achieve price stability (control inflation) and promote full employment. Your main tool for achieving these two goals is to adjust interest rates.
If prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises interest rates, which benefits the price of the USD. If inflation falls below 2% or the unemployment rate is too high, the Fed can cut interest rates, weighing on the dollar.
In extreme situations, the Federal Reserve can also print more dollars and conduct quantitative easing (QE). QE is the process by which the Fed significantly increases the flow of credit into an overburdened financial system.
This is an unconventional policy measure used when credit has dried up because banks are refusing to lend to each other (for fear of counterparty default). This is a last resort when simply lowering interest rates is unlikely to achieve the desired result. It was the Fed’s weapon of choice to combat the credit crunch during the Great Financial Crisis of 2008. The Fed prints more dollars and uses it to buy US government bonds, especially from financial institutions. QE usually leads to a weakening of the US dollar.
Quantitative tightening (QT) is the reverse process in which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
