US Dollar steady as US traders return from Thanksgiving

FXStreetNov 29, 2024 6:18 PM

US Dollar Index falls near 106.00 on a quiet Friday.
DXY stands soft as US markets open on Black Friday after remaining closed on Thursday.
The hawkish Fed and strong economic outlook from the US might limit the downside.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, trades near 106.10 with mild losses but trimmed most of its daily losses, which saw the index below 106.00.

Overall, the US Dollar maintains a bullish outlook, supported by strong economic data and a hawkish Federal Reserve (Fed) stance. Despite profit-taking and geopolitical uncertainty, the uptrend remains intact.

This week, thin liquidity and market holidays have resulted in reduced trading activity, but the DXY is expected to continue its upward trajectory due to robust US economic growth.

Daily digest market movers: US Dollar stabilises on Friday ahead of the weekend

The US Dollar Index is currently trading near 106.00 with slight losses.
The Greenback has recovered since the reopening of US markets on Black Friday.
The Euro's rally, which pressured the USD, has subsided, influencing the DXY's behavior.
The Fed’s hawkish stance might continue pushing the index higher.
This week’s Federal Open Market Committee Minutes suggested that the Fed is in no rush to cut rates.
Some participants cautioned that disinflation could take longer than expected. Officials discussed a "technical adjustment" to money market operations.
According to the CME FedWatch Tool, the odds of a December rate cut have risen to around 66%.

DXY technical outlook: Despite profit-taking, outlook remains bullish

Technical indicators for the DXY suggest a period of consolidation with the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators hovering around neutral levels.

Despite a recent dip below the 20-day Simple Moving Average (SMA), the index has quickly recovered, indicating that the uptrend remains intact. Key support is found at 106.00-106.50, while resistance is at 108.00. The overall bullish momentum suggests that the uptrend is likely to continue in the medium term as the US economy remains robust and the Fed is expected to cool down rate cut bets. Traders should monitor the 106.00 level closely as a break below this level could trigger further downside.

US Dollar FAQs

What is the US Dollar?

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.

How do the decisions of the Federal Reserve impact the US Dollar?

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.

What is Quantitative Easing and how does it influence the US Dollar?

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.

What is Quantitative Tightening and how does it influence the 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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.