The U.S. Dollar Index (DXY) is trending upward at the beginning of the new month, currently trading at 103.45 points after a series of declines over the past few days.
The current strength of the U.S. Dollar Index is attributed to recent inflation figures for U.S. personal consumption expenditures released yesterday, indicating the resilience and strength of the economy, leading to a sharp rise in the U.S. dollar and yields.
Despite slowing inflation, a weak job market, and mixed economic data, Federal Reserve officials do not rule out further tightening of monetary policy and interest rate hikes. This is attributed to the officials’ attempt to balance data results, economic conditions, and market expectations.
Economic reports provide conflicting signals, and there is insufficient evidence of a significant decrease in inflation from the Federal Reserve’s perspective.
Therefore, I believe the Dollar Index has maintained a strong trading position since yesterday, supported by negative market sentiment following U.S. personal consumption expenditures inflation figures and a strong rise in U.S. bond yields.
The annual Consumer Price Index for October, as expected, decreased slightly to 3%, down from the previous rate of 3.4%.
Also in October, the annual Core Personal Consumption Expenditures Price Index matched expectations at 3.5%, a slight decrease from the previous rate of 3.7%. The weekly report from the U.S. Department of Labor revealed that initial jobless claims for the week ending on November 25 were 218,000, slightly lower than the expected 220,000 but higher than the previous figure of 211,000.
These numbers seem to have diminished optimism in the markets, raising caution amid the Federal Reserve’s cautious stance, waiting for more evidence of a persistent decrease in inflation.
On Friday, the markets are anticipating the release of the Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index for November. Fed Chair Powell will also deliver a speech, with positive outcomes expected to support the strength of the U.S. dollar and the Federal Reserve’s hawkish stance.
Especially as U.S. bond yields have seen a significant increase, reaching 4.71%, 4.29%, and 4.34% for the 2-year, 5-year, and 10-year bonds, respectively.
Stock prices on Wall Street have been mixed, with the Nasdaq index declining while the Dow Jones index is heading toward its highest daily close since January 2022. This aligns with the Fed’s welcome and hints at more future interest rate hikes to combat stubborn inflation.
However, markets have practically priced in no interest rate hikes during the upcoming December meeting. Additionally, markets anticipate interest rate cuts in mid-2024. Any surprises in data numbers and a return of the U.S. dollar’s strength could significantly shift market dynamics.
After experiencing its best day in weeks, the U.S. Dollar Index (DXY) continues its recovery from monthly lows, surpassing the 103.50 level, which we previously emphasized as significant.
This movement appears to be corrective, but U.S. data and fundamentals may prevent the index from reaching new lows in the coming weeks. This could mark the beginning of a new, moderately strong bullish trend in the short and medium term.
