US Dollar eases amid profit-taking and year-end positioning
- DXY slips as profit-taking sets in, falling toward 107.80.
- Traders parse disinflationary PCE data after Fed’s hawkish cut on Wednesday.
- The soft inflation readings might not alter the ‘wait and see’ posture of the Fed.
The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, took a hit after soft Personal Consumption Expenditures (PCE) data was released during the European session. Markets are also assessing political woes in the US, which soured market sentiment.
Daily digest market movers: US Dollar reacts to disinflationary PCE, shutdown risks, and Fed stance
- Risks of a US government shutdown have risen as House Republicans failed to pass a funding deal. Although a brief shutdown may have limited market impact, negotiations remain in focus.
- Longer-term Treasury yields continue to climb, with the 10-year yield near 4.60% and the 30-year yield at 4.77%, steepening the yield curve.
- November PCE data came in softer than expected, with monthly headline inflation at 0.1% and annual at 2.4%, below the 2.5% forecast.
- Core PCE also missed expectations. This slight disinflationary print may not alter the Fed’s recent hawkish stance significantly though.
- The Federal Reserve’s hawkish signals and fewer projected cuts in 2025 continue supporting the US Dollar’s relative strength.
- Meanwhile, robust Q3 GDP at 3.1% SAAR and solid consumer spending highlight underlying US economic resilience.
- The Atlanta Fed GDPNow model forecasts Q4 growth at 3.2% SAAR, and the New York Fed’s Nowcast sees Q4 at 1.9% SAAR, maintaining an upbeat growth narrative.
DXY technical outlook: Indicators ease as index slips below 108.00
After Wednesday’s upward movements, indicators are easing as the index breaks below 108.00 on Friday, currently hovering near 107.60. The pullback suggests the recent rally may be taking a breather. Still, if the DXY can hold above its 20-day Simple Moving Average, the broader bullish structure remains intact, leaving room for further gains once profit-taking subsides and fundamental drivers reassert themselves.
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 2022. 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.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.