US Dollar declines on Fed rate cut, profit taking

• US Dollar Index (DXY) declined marginally after the Federal Reserve’s 25 basis point rate cut.
• Fed officials see the economy expanding solidly but that labor market conditions have eased.
• The rate cut decision was unanimous.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies declined marginally after the Federal Reserve’s 25 basis point rate cut. The Fed acknowledged the economic outlook’s uncertainty but still sees the economy expanding solidly. Despite the rate cut, the Fed indicated confidence in achieving its long-term inflation target of 2%.

The US Dollar Index had  surged this week after Trump’s election due to expectations of inflationary policies and the report of strong services sector data. Profit taking after that huge surged might pushed the USD lower.

Daily digest market movers: US Dollar dips amid profit-taking after Fed cut

• The US Dollar Index (DXY) dipped marginally following the Fed’s 25 basis point interest rate cut, currently trading around 104.50.
• The Fed lowered its Fed Funds Target Range to 4.50%-4.75%, as widely anticipated by the market.
• This cut marks a reduction from the 50 basis point cut implemented at the September 18 meeting.
• Economic indicators suggest continued solid economic expansion, though the outlook remains uncertain with risks balanced.
• The Fed statement acknowledged progress towards the 2% inflation target, while acknowledging that inflation remains somewhat elevated.
• The rate cut decision was unanimous, with all policymakers, including Governor Michelle Bowman, supporting the move.
• The statement highlighted the Fed’s continued commitment to balancing its dual mandate of price stability and maximum employment.
• The Fed emphasized that labor market conditions have eased, but the economy continues to expand at a solid pace.
• During the press conference, Chair Powell stated that rconomic policy is shifting toward a more neutral stance, with inflation progress steady and labor market conditions stable.
• He also mentioned that caution is prioritized to balance growth and inflation, adjusting rates as needed based on economic signals and resilience.

DXY technical outlook:  DXY technical analysis: Bullish momentum resurges despite pullback

The DXY index’s technical indicators initially retreated but rebounded strongly on Wednesday, maintaining positive territory. The Relative Strength Index (RSI) surpassed 50, signaling a resurgence in bullish momentum. However, the Moving Average Convergence Divergence (MACD), it remains below zero, indicating some selling traction.

The DXY index recovered the support at its 200-day Simple Moving Average (SMA), indicating a potential reversal of the recent downtrend. Furthermore, the index is approaching a bullish crossover between the 200-day and 20-day SMAs. This technical pattern often signals a change in trend and could lead to further upward momentum in the DXY. If the crossover is completed, it could provide a strong confirmation of a bullish reversal and push the index higher.