The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, whipsawed in a volatile session on Wednesday, hovering around a 14-month low due to intensifying recession fears. Despite persistent market expectations of Federal Reserve (Fed) easing, the central bank has pushed back against dovish sentiments. Friday’s Personal Consumption Expenditures (PCE) data for August will be closely watched.
While the US economy shows signs of a slowdown in certain sectors, other areas remain resilient, supporting overall economic activity. Despite this mixed economic picture, the Fed has emphasized that the future path of interest rate adjustments will depend on upcoming economic data.
However, later in the day, the currency recovered and settled with a gain above 0.50%, trading above 100.98 following the release of Bank of Japan minutes and stronger-than-expected US home sales data.
The USD/JPY pair edged lower to around 144.60 during the early Asian session today. The weakening of the US Dollar (USD), amid rising bets on a substantial interest rate cut by the US Federal Reserve (Fed) in November, continues to pressure the pair. Investors are now awaiting further economic data and signals regarding upcoming rate cuts from Fed officials.
Data released by the Commerce Department on Wednesday showed that US new home sales fell by 4.7% MoM to 716,000 in August, down from a revised 751,000 in July, but still above market expectations. Earlier this week, a weaker-than-expected US consumer sentiment report raised concerns about the labor market, fueling expectations of deeper rate cuts by the Fed.
The market continues to overestimate the extent of Fed easing, despite efforts by some Fed Governors to temper dovish expectations.
Today, US Gross Domestic Product (GDP) figures and Friday’s PCE data will be key drivers of USD dynamics. It is worth noting that Fed Chair Jerome Powell has reiterated that the pace of the easing cycle will depend on incoming data, so these releases could have significant implications for the USD. Powell is scheduled to speak on Thursday.
Technical Outlook – U S Dollar Currency Index
The Dollar Index paused its recent decline and recovered over half a percent yesterday. The index touched an intraday high of 100.99 and settled at 100.91, up from the previous close of 100.35.
The recent price action has led to the formation of a bullish piercing line candlestick pattern, a key indicator of potential trend reversal. However, for a sustained upward move, the Dollar Index would need to surpass the immediate resistance at 101.10, which could then open the door for gains toward the 101.35–101.55 range in the short term.
Otherwise, the index is expected to trade within a volatile range between 100.99 and 100.32, as its momentum remains highly news-driven, with various headlines and economic data contributing to extreme volatility across FX markets.
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Commodity Samachar Securities
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