U.S. Dollar Index Erases Daily Losses After Powell’s Speech
The U.S. dollar, measured by the DXY, received a boost and jumped back above the 108.40 level following Fed Chairman Jerome Powell’s hawkish speech at the Jackson Hole Economic Symposium.
At the time of writing, the DXY trades near daily highs at the 108.80 area, recording a 0.35% gain on Friday after falling to as low as 107.58 earlier in the session.
Chair Powell highlighted that price stability is the bedrock of the economy and hinted that while July’s CPI reading was welcomed, the FOMC job is not yet done. He said current inflation levels “are far short of what the committee expects”. Powell confirmed that an unusually large interest increase would be appropriate for the upcoming September meeting, but the decision will depend on the incoming data. He also stated that the tighter financial conditions would produce “below-trend growth” and a “softening” of the labor market that might bring pain to households and businesses.
Risk-off sentiment was triggered across markets as an immediate reaction. Capitals flew to safer assets, and the U.S. bond yields edged higher amid higher rate hikes expectations. According to WIRP, a 50 bps hike remains fully priced in for the September meeting, and the market participants are betting 60% odds of a 75 bps hike. Incoming inflation and labor data will dictate the pace of the market in the following days, as they will play a significant role in the size of the next FOMC rate hike.
According to the weekly chart, the DXY holds a bullish technical outlook and remains poised for a second consecutive weekly gain.
The upside bias is also present on the daily chart although indicators suggest a deceleration of the bullish momentum. The daily RSI holds a neutral slope near overbought levels, while the MACD prints lower green bars, indicating dwindling buying interest.
On the upside, the next resistance level is seen at the 109.00 psychological mark. A break above would pave the way to advance towards the cycle highs hit on July 14 at 109.29. On the other hand, the 107.60 zone offers immediate support, which, if lost, would expose the 107.00 level and the 20-day SMA, currently at 106.85.
At the time of writing, the DXY trades near daily highs at the 108.80 area, recording a 0.35% gain on Friday after falling to as low as 107.58 earlier in the session.
Chair Powell highlighted that price stability is the bedrock of the economy and hinted that while July’s CPI reading was welcomed, the FOMC job is not yet done. He said current inflation levels “are far short of what the committee expects”. Powell confirmed that an unusually large interest increase would be appropriate for the upcoming September meeting, but the decision will depend on the incoming data. He also stated that the tighter financial conditions would produce “below-trend growth” and a “softening” of the labor market that might bring pain to households and businesses.
Risk-off sentiment was triggered across markets as an immediate reaction. Capitals flew to safer assets, and the U.S. bond yields edged higher amid higher rate hikes expectations. According to WIRP, a 50 bps hike remains fully priced in for the September meeting, and the market participants are betting 60% odds of a 75 bps hike. Incoming inflation and labor data will dictate the pace of the market in the following days, as they will play a significant role in the size of the next FOMC rate hike.
According to the weekly chart, the DXY holds a bullish technical outlook and remains poised for a second consecutive weekly gain.
The upside bias is also present on the daily chart although indicators suggest a deceleration of the bullish momentum. The daily RSI holds a neutral slope near overbought levels, while the MACD prints lower green bars, indicating dwindling buying interest.
On the upside, the next resistance level is seen at the 109.00 psychological mark. A break above would pave the way to advance towards the cycle highs hit on July 14 at 109.29. On the other hand, the 107.60 zone offers immediate support, which, if lost, would expose the 107.00 level and the 20-day SMA, currently at 106.85.
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