- The DXY softened near 106.30 on Tuesday.
- The DXY weakened despite a rise in JOLTs figures from October due to profit-taking.
- Fed policy remains data dependent with odds of a December cut rising to nearly 75%.
In Tuesday’s session, the US Dollar Index (DXY) weakened despite a rise in Job Openings & Labor Turnover (JOLTs) figures from October. This weakness may be attributed to profit-taking after recent rallies against major G20 currencies. Economic data from China, including a cut in deposit rates and details of a stimulus package, contributed to the DXY’s decline.
This week’s labor market data will guide the Greenback’s dynamics as it will direct the odds of the December cut expectations by the Federal Reserve (Fed).
Daily digest market movers: US Dollar retreats as investors assess JOLTs figures, Kugler statement
- Job Openings in the US climbed to 7.74 million in October. This figure surpassed market estimates of 7.48 million and marked an increase from September’s 7.37 million figure.
- October saw little change in hires, remaining at approximately 5.3 million.
- Total separations also held steady at around 5.3 million and resignations (quits) rose to 3.3 million, while layoffs and discharges showed minimal change at 1.6 million.
- On the Fed’s policy front, its stance remains data-dependent, with policymakers leaving options open for the December meeting, but overall economic activity remains resilient and that might push officials to think twice before signalling aggressive easing.
- The Fed’s Adriana Kugler was on the wires, giving her view on the central bank’s stance.
- Kugler stated that the Fed’s policy is flexible, well-positioned for uncertainties, and aims to achieve a neutral stance as inflation trends toward 2%.
- Kugler commented that the economic strength stems from a solid labor market, productivity growth and immigration, though risks like supply shocks remain.
- Kugler stressed that disinflation continues, with modest labor cooling balancing progress; trade policy impacts are yet unclear.
DXY technical outlook: US Dollar Index has bright outlook, supported by bullish trend and recent surge above 106.50
The index rose above 106.50 overnight, boosted by positive economic data and a hawkish Fed stance. However, the Index has retreated to 106.14 at the time of writing. The DXY has secured the 20-day SMA, indicating a bullish trend. Buyers are looking to defend this level and retest the 107.00 area.
Technical indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), suggest mixed signals but that the uptrend is likely to continue. The MACD is below its signal line, indicating the presence of bearish momentum, but the RSI remains firm above 50. The key support is found at 106.00-106.50, while resistance is at 107.00.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/us-dollar-loses-ground-following-jolts-release-pressured-by-profit-taking-202412031818