- DXY trades near 106.00 with muted price action as markets prepare for November CPI.
- Inflation data is forecast to edge higher, keeping the Federal Reserve’s cautious tone in focus.
- Profit-taking moderates gains, but strong economic data continues to support the Greenback.
The US Dollar Index (DXY) holds steady around the 106.00 mark as markets recalibrate following robust Nonfarm Payrolls (NFP) data last week. While a December rate cut by the Federal Reserve (Fed) remains widely anticipated, attention now shifts to November Consumer Price Index (CPI) data due Wednesday. Analysts expect annual headline inflation to rise to 2.7% from October’s 2.6%, while the core CPI is likely to remain unchanged at 3.3%.
Despite some profit-taking after recent rallies, the Greenback remains buoyed by strong US economic fundamentals, with solid growth and sentiment indicators offering continued support.
Daily digest market movers: US Dollar trades sideways with key data ahead, backed by strong economic outlook
- November CPI headline inflation is forecast to rise to 2.7%, while core inflation is seen steady at 3.3%.
- NFIB small business optimism surged to 101.7, its highest level since June 2021, reflecting improved business conditions.
- The Atlanta Fed GDPNow model predicts Q4 growth at 3.3%, while the New York Fed Nowcast model projects 1.9% for Q4 and 2.4% for Q1 2025.
- Markets are pricing nearly 90% odds of a December rate cut, expected to be a “hawkish cut” amid sticky inflation concerns.
DXY technical outlook: Bulls eye higher levels amid cautious optimism
The DXY hovers near 106.00, with technical indicators offering mixed signals. The Relative Strength Index (RSI) points slightly upward but remains in negative territory, suggesting limited bullish momentum. The Moving Average Convergence Divergence (MACD) indicator shows smaller red histogram bars, signaling reduced bearish pressure.
The index is approaching the 20-day Simple Moving Average (SMA), a pivotal level for short-term direction. Resistance levels are noted at 106.50 and 107.00, while support remains strong between 105.50 and 106.00. Traders await Wednesday’s CPI release, which could trigger heightened volatility depending on the inflation outcome.
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.
Source: https://www.fxstreet.com/news/us-dollar-gains-ahead-of-inflation-data-202412101822