US Dollar trades mixed after positive Consumer Confidence data
- FOMC Meeting Minutes are the next shoe to drop later on Tuesday.
- USD fluctuates after positive Consumer Confidence figures from the Conference Board before volatility subsides.
- President-elect Trump threatens tariffs on Mexico, Canada and China, boosting the Greenback.
In Tuesday's session, the US Dollar Index (DXY) which measures the value of the Greenback against a basket of currencies, fluctuated near 107.00 following the release of key economic data. In the meantime, markets digest President-elect Donald Trump’s threat to impose tariffs on three of its largest trading partners and await clues in the Federal Open Market Committee (FOMC) Meeting Minutes to be released later in the session.
The US Dollar Index has exhibited a bullish bias, driven by strong economic data and a less dovish Federal Reserve (Fed) stance. Despite recent pullbacks due to profit-taking and geopolitical uncertainty, the uptrend remains intact. Technical indicators suggest potential consolidation with overbought conditions easing.
Daily digest market movers: US Dollar appears neutral after Consumer Confidence data
- Consumer Confidence in the United States improved in November with the Conference Board's index increasing from 109.6 to 111.7.
- The Present Situation Index rose by 4.8 points to 140.9, while the Expectations Index edged higher to 92.3.
- Ahead of the FOMC Minutes, the CME FedWatch Tool estimates a 59% probability of a further 25 bps rate cut by the Fed on December 18.
- The US 10-year Treasury benchmark rate declined to 4.29%, down from its recent high of 4.50%.
DXY technical outlook: Consolidating near 107.00, uptrend remains intact despite recent pullbacks
The DXY is consolidating after a strong rally, having pulled back from two-year highs. The index is currently hovering around 107.00, near the upper end of its recent trading range.
Technical indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), are suggesting potential for a correction, but the overall bullish momentum remains strong. The DXY is likely to face resistance at 108.00 and support at 106.00-106.50. A break above 108.00 would signal a continuation of the uptrend, while a break below 106.00 would indicate a deeper correction is possible.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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