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US Dollar holds steady, eyes on economic data

  • US Dollar experiences modest gains as the currency seems to have hit a ceiling after a furious rally in October.
  • Ongoing economic outperformance remains a major theme underpinning higher US Treasury yields and USD strength.
  • Wednesday’s Fed’s Beige Book report and Thursday’s S&P PMIs figures will be important.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, sees modest gains amidst profit-taking after a sustained rally. US equities are pulling back while Treasury yields and the USD continue to strengthen.

Indeed, the International Monetary Fund’s (IMF) updated growth forecasts are expected to favor the US economy, contributing to the ongoing trend of economic outperformance of the US against its peers and supporting the USD, which may trigger a more cautious stance among Federal Reserve (Fed) officials.

As for now, markets are betting on high odds of two 25 bps Fed cuts in 2024, but it will all come down to incoming data.

Daily digest market movers: US Dollar rising amid equity market decline and rising Treasury yields

  • IMF’s updated growth forecasts are expected to show the US economy still outpacing most other major economies, underpinning higher Treasury yields and USD strength.
  • Higher Treasury yields are attracting foreign capital inflows, providing further support to the US Dollar.
  • Equity markets are tumbling with widespread profit-taking after a strong rally in 2021.
  • Geopolitical concerns over the Ukraine-Russia conflict and tensions in the Middle East are adding to this risk-off environment.
  • The divergence theme remains alive and well with the US economy continuing to outperform most other major economies.

DXY technical outlook: DXY surges above 200-day SMA, faces resistance

The DXY index surpassed the 200-day SMA, but waning buying momentum suggests it may struggle to establish above it. Consequently, the index may engage in lateral trading in the near term. The Relative Strength Index (RSI) remains flat within overbought territory, and the Moving Average Convergence Divergence (MACD) shows flat green bars.

Support levels lie at 103.50, 103.30 and 103.00, while resistance levels are at 103.80, 104.00 and 104.30.

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