- The DXY Index marks a positive stride, trading with gains of 0.60% near the 103.50 area.
- US PCE figures decelerated but showed no surprise, which gives reasons for the Fed to remain cautious.
- Investors will eye November’s ISM Manufacturing PMI report, which is due on Friday. Chair Powell will be on the wires.
The US Dollar (USD) is trending upward, and the US Dollar Index (DXY) exchanged hands on Thursday at 103.45. This USD strength is largely attributed to the latest US Personal Consumption Expenditures (PCE) inflation figures from the US, which fueled the USD and US yields higher.
Despite cooling inflation and a mixed labor market, Federal Reserve (Fed) officials are not ruling out further policy tightening, hinting at a moderately hawkish stance. This is due to officials balancing the costs of doing too little and doing too much, as economic reports are giving mixed signals or not enough evidence of inflation coming down in the eyes of the Fed.
Daily Market Movers: US Dollar gains momentum as PCE figures warn markets
- The US Dollar maintained a strong trading position on Thursday, favoured by a sour market mood after the US PCE inflation figures and an uptick in yields.
- October’s annual PCE Price Index, reported by the US Bureau of Economic Analysis, came in as expected at 3%, down from the previous rate of 3.4%.
- Also for October, the annual Core PCE Price Index matched consensus expectations at 3.5%, a decrease from the preceding rate of 3.7%.
- The weekly report from the US Department of Labor revealed Initial Jobless Claims for the week ending November 25 stood at 218K, slightly below the predicted 220K but higher than the previous figure of 211K.
- Those figures seem to have lowered the hype on markets and favour the cautious stance of the Fed, which is requesting more evidence on inflation coming down.
- On Friday, the spotlight will be on the release of the Institute for Supply Management’s (ISM) Manufacturing PMI for November. Chair Powell will also deliver a speech.
- US bond yields witnessed a rise, with numbers for 2-year, 5-year and 10-year yields logging in at 4.71%, 4.29%, and 4.34%, respectively.
- In anticipation of the upcoming December meeting, the CME FedWatch Tool signals that markets have practically priced in a no hike. Additionally, markets predict rate cuts in mid-2024.
Technical Analysis: The US dollar gains some traction, but indicators highlight bear dominance
The Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD) histogram, and Simple Moving Averages (SMAs) on the daily chart collectively signal a stronghold of selling momentum. The RSI’s position below the median line indicates a trend leaning toward the sellers despite showing a positive slope. The MACD histogram’s negatives further underline the intact bearish pressures, but its bars flattened, reflecting that bears are taking a breather.
Adding to this, the index is below the 20,100 and 200-day Simple Moving Averages (SMAs), explicit evidence of bears unchallenged strength in the broader scenario.
Support levels: 103.30, 103.15, 103.00.
Resistance levels: 103.60 (200-day SMA), 104.00, 104.20 (100-day SMA)
Inflation FAQs
Inflation measures the rise in the price 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 more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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- Source: https://www.fxstreet.com/news/us-dollar-gains-ground-on-the-back-of-us-pce-inflation-figures-rising-us-yields-202311301822
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