US Dollar flat ahead of last economic data for this week and Trump's inauguration
- The US Dollar steady at current levels on Friday ahead of data.
- Markets are clueless on what to do next after Fed’s Waller comments a March rate cut is still in the cards.
- The US Dollar Index (DXY) holds around 109.00 and is looking for direction.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, further consolidates around the 109.00 level on Friday, though positioning is being torn into two camps. After a pivotal move earlier this week on the back of the US Consumer Price Index (CPI) for December, Federal Reserve (Fed) Governor Christopher Waller added some more oil to the fire on Thursday, alluding that a March rate cut would still be appropriate. Traders are now left clueless ahead of President-elect Donald Trump’s inauguration on Monday.
The US economic calendar is very slim this Friday, with some housing data for December on the agenda. Expect traders to consolidate their positions ahead of Monday, when US stock markets will be closed in observance of Martin Luther King Day.
Daily digest market movers: Venture a bet before Monday
- Traders are torn on Friday by comments from Federal Reserve Governor Christopher Waller, who advocated for a Fed rate cut in March on Thursday.
- Meanwhile, the Trump administration has confirmed a battery of executive orders that will be issued once President-elect Donald Trump takes office as the 47th President of the United States on Monday. Those orders include a whole batch of fiscal measures, tariff levies, and stimulus packages, which are bound to have an inflationary impact.
- At 13:30 GMT, US Building Permits and Housing Starts for December will be released. Permits are expected to decline to 1.460 million from 1.493 million the previous month, while Housing Starts should soar to 1.32 million, coming from 1.289 million units in November.
- At 14:15 GMT, US Industrial Production data is expected to show a 0.3% increase in December, compared to the slight contraction of 0.1% in the previous month.
- Equities are in the green on Friday after their hectic performance on Thursday. There are no real outliers to report, with all three main US indices futures comfortably booking gains ahead of the US opening bell.
- The CME FedWatch Tool projects a 97.3% chance that interest rates will be kept unchanged at current levels in the January meeting. Expectations are for the Federal Reserve (Fed) to remain data-dependent with uncertainties that could influence the inflation path once President-elect Donald Trump takes office on Monday.
- The US 10-year yield is trading around 4.568%, plunging near 5.0% from its Tuesday’s peak of 4.807%.
US Dollar Index Technical Analysis: Blurry towards Monday
The US Dollar Index (DXY) is taking it on the chin, and Federal Reserve Governor Christopher Waller delivered the possible knockout blow on the Greenback for now. Waller's bold call for a March rate cut surprised traders and was not priced into market expectations. A wrong-footed market could result now, as the Fed was supposed to remain data-dependent. This could set up markets for an erroneous positioning once President-elect Donald Trump starts to roll out his policy.
On the upside, the 110.00 psychological level remains the key resistance to beat. Further up, the next big upside level to hit before advancing any further remains at 110.79. Once beyond there, it is quite a stretch to 113.91, the double top from October 2022.
On the downside, the DXY is testing the ascending trend line from December 2023, which currently comes in around 108.95 as nearby support. In case of more downside, the next support is 107.35. Further down, the next level that might halt any selling pressure is 106.52, with interim support at the 55-day Simple Moving Average (SMA) at 107.19.
US Dollar Index: Daily Chart
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.