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US Dollar turns nervous as Gaza ceasefire headlines emerge alongside a North Korean missile launch


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  • The Greenback trades choppy on Tuesday ahead of the release of the FOMC Minutes. 
  • Traders are opting for risk-on bets, undermining safe havens like the Swiss Franc and the US Dollar. 
  • The US Dollar Index falls to around 103.00, with risks of more downturn to come. 

The US Dollar (USD) becomes choppy in the last hour as headlines on a possible ceasefire in Gaza is being crossed with a missile launch from North Korea. The Greenback is down over 0.50% against the Japanese Yen (JPY) and the Chinese Renminbi (CNY) as the overall risk sentiment looks to be in favour of risk-on investment, with equities soaring and safe havens abating, adding to the depreciation call for the Greenback. 

The calendar for this Tuesday is picking up pace, with one main event right at the end of the day: the FOMC Minutes from the latest Federal Reserve (Fed) meeting in November, when the central bank opted to leave interest rates unchanged. Traders and analysts will look for clues and side remarks on whether inflation is coming down quickly enough for the Fed to end its hiking cycle and either stay steady or enter a cutting cycle immediately thereafter. On Monday, the Chicago Mercantile Exchange (CME) Fed Fund futures, a tool that gauges market expectation of potential changes to the Fed funds rate, briefly priced in a small possibility of already a rate cut at the upcoming December meeting. 

Daily digest: Fed Minutes in scope

  • Tuesday’s economic calendar took off at 13:30 GMT, with the Chicago Fed National Activity Index release for October. Previous reading was at 0.02 and now came in at -0.49.
  • At 13:55 GMT, the Redbook Index for last weekwas released, and went from 3% to 3.4%
  • At 15:00 GMT, Existing Home Sales data for October is due to come out. Expectations are for a small decline from 3.96 million to 3.9 million. 
  • At18:00 GMT, the US Treasury department will issue a 10-year TIPS auction.
  • At 19:00 GMT, the main event for this Tuesday is the publication of the Fed’s latest FOMC Minutes. 
  • Equities are flat and looking for direction as Asian markets are not taking over the risk on sentiment that came from the US on Monday. Markets are bracing for the Nvidia earnings, which will come out after the US closing bell. 
  • The CME Group’s FedWatch Tool shows that markets are pricing in a 100% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. 
  • The benchmark 10-year US Treasury Note yield trades at 4.41%, extending its decline as demand remains present in buying US debt. The 20-year allocation on Monday was a big success with a bid-to-cover ratio of 2.58, above the 2.4 average. 

US Dollar Index technical analysis: Nervous for more upside

The US Dollar is sticking to the technical approach after on Monday it breached the 200-day Simple Moving Average (SMA) at 103.62 when gauged by the US Dollar Index (DXY). The Fed FOMC Minutes could briefly provide some support and ease the Relative Strength Index, which is starting to trade in the oversold area on the daily chart. Although relief, do not expect a substantial turnaround as the market broadly anticipated that the Fed is done hiking, at least for now. 

The DXY was unable to bounce off the 100-day SMA and is treading further water at the 200-day SMA. Look for the recovery bounce towards the 100-day SMA near 104.20. Should the DXY be able to close and open above it, look for a return to the 55-day SMA near 105.71 with 105.12 ahead of it as resistance. 

Traders were warned that when the US Dollar Index would slide below that 55-day SMA, a big air pocket was opening up that could see the DXY fall substantially. The 200-day SMA is trying to keep everything together, though it is losing its impact quickly. The psychological 100-level comes into play. With a very slim economic calendar and several US market participants off the desk for the holidays, there is room for a potential big downturn this week. 

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.