The US Dollar Index is trading below the 200-DMA at 105.29 on expectations of a fall in rate hikes by the Federal Reserve after inflation hit 7.7% in October.
The US Dollar Index fell lower last week as the Fed announced plans to slow down rate hikes. The US annual inflation rate slid to 7.7% in October 2022. The US Dollar index dropped 1% this week.
US Dollar Index Trading Below 200 DMA
When the US Dollar index tumbled below the 112 level in November, it fell more than 7% and is currently trading at the $104 level in the first week of December. The DXY is at a 4-months low.
Any further decline in the DXY this week may take the US Dollar Index to the 103.90 level. The Dollar shows signs of weakness and may drift lower in the days to come to 103.00 levels too.
However, a surge upwards will take the Dollar Index towards 107.00 levels and further upwards. Investors have to consider the 200-DMA mark for further movement of the Dollar Index in the forex market as it has high implications on other currencies too.
Amid high inflation, the Federal Reserve took aggressive steps to hike interest rates. Higher interest rates brought the US Dollar Index to a 20-year high at 114.75. In November, the USD was at a two-decade high. It is now trading at a 4-month low and below the 200-DMA as well.
The US Dollar Index began the month of December by trading below the 200-DMA. The DXY closed at 104.45 last week, December 2, 2022, just below the 200-DMA placed at 105.29. The DXY was trading above the 200-DMA for almost 360 days, the longest duration on record. But the sudden slide has investors worried, as a dip below this point will usher in a turning point for the DXY that may erode investor money. The US Dollar is a safe-haven asset, and many investors have invested in the forex market amid the economic turmoil present in the country. Many investors preferred the greenback as a safe investment when war broke out between Russia and Ukraine.
Fed Chairman Jerome Powell on Inflation
The annual inflation rate in the US is at 7.7% in October 2022. Previously, the rate was at 8.2%, according to data released by the US Labor Department.
Powell’s aggressive stance has worked well for the country. The labor market has improved and adds to the positive sentiment in the country. Experts predict a slowdown in rate hikes, and the Fed may slacken its hold on high rates.
The US Dollar rose to a 2-decade high as inflation hit the country and interest rates were high. With inflation improving, the USD slid to five-month lows in the forex market. Inflation reached a peak of 9.1% in June.
Powell states that fighting inflation is the top priority, but the pace of quantitative tightening will slow down. The fight against inflation is not over, said Powell.
Consumer Spending Grows in the US
The US Dollar continues to slide lower as the country releases positive data. Consumer spending is good despite high inflation. Rising crude prices and food costs hamper the livelihood of people. But the labor market remains strong. Food and energy prices are volatile and fluctuate month on month. It disrupts household budgets.
Employment data is above expectations, as the number of employees added in November is 263,000, above the estimated figure of 200,000. The Fed can slow down rate hikes as the economy gets better. The job sector is better than anticipated, and there is no necessity to hike rates at a fast speed.
Forecast of Major Currency Pairs
The Euro to US Dollar index is trading at 5-month highs. The Euro is moving higher in December, trading at 1.0540. It is gaining strength against the weakening Dollar.
The Eurozone shows signs of recovery as the annual rate of inflation dipped in November. It is the first time in recent months that inflation has fallen lower.
The British Pound to US Dollar is moving with a positive trajectory. The GBP/USD currency rate is above the psychological resistance at 1.20. The Sterling, which closed at 1.2287 last week, may strengthen to 1.2500 levels very soon.
The USD/JPY currency pair weakened to ¥134.30 in December 2022. Experts predict the US Dollar to Japanese Yen to touch ¥132.80 levels, as weakness persists in the Dollar and Yen value.
The recent decline in the US Dollar is expected to affect other major currencies too. The Euro and the British Pound have strengthened with weakness in the Dollar value. However, geopolitical tensions continue to rise in several countries, especially with the Russia-Ukraine war and an alarming increase in covid cases in China, which ushered in severe lockdown measures.
The US Dollar Index closed below the 200-DMA for the first time. It started its upward journey in June 2021. Any movement above or below this psychological level will determine the direction of the DXY in December.