Is the US Dollar Index Taking a Bearish Turn Amid Possible Fed Rate Hike?

Is the US Dollar Index Taking a Bearish Turn Amid Possible Fed Rate Hike?

The US Dollar index plunged to its lowest in more than two months yesterday. The currency continues to weaken against its major counterparts, from the previous week posted 2% fall, amid an anticipation that the U.S. Federal Reserve has completed its fed rate rate hike cycle and look towards when the central bank may start to cut rates.

The US dollar hit 103.180, its lowest level since September 1, 2023, down 0.36% on the less aggressive stance of the Federal Reserve (Fed) following softer inflation numbers last week.

The Consumer Price Index (CPI) in the US in October slowed down to 3.2% YoY, and the core CPI fell to 4% YoY. Which marked that the softening inflation may influence a less aggressive Fed, and investors are now taking off the table a Fed rate hike at the December meeting and foreseeing sooner rate cuts in 2024.

Further, Signs that the borrowing cost is not going to rise further made the dollar less attractive, with stronger pressure seen on forecasts of earlier than expected start of rate cuts.

Now, minutes from the Fed’s latest meeting are scheduled to be released later today, and the market will look forward to comments for any signals on the central bank’s policy path. Recent comments from some Fed officials have not ruled out the possibility for more Fed rate hikes could be needed should a change in economic data require it.

US Dollar Index – Technical Outlook:

The US Dollar index plunged from the peak of 106.0064 down 2.46%, since 10 November 2023.  Now, it is trading at 103.2110 down 0.23%.

As per the outlook given on 3 November 2023, an ascending triangle pattern proved accurate and the US Dollar Index gave more than 2% drastic move. After breaching support of 105.5025 drop below 104.8550-104.2550 predicted levels.

On the above chart, the currency is travelling below 200 SMA, which is still indicating bearish momentum in the currency. However, the dollar is trading above its crucial support 102.9850 and it would need to break it in order to next support 102.5850-102.2025.00.

Alternatively, failure of the break might see a bounce towards 103.6550-104.2025.00 before next plunge, as the prospects of Fed rate hike pause will hold weakness in the dollar against its major counterparts.

Commodity Samachar
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