This week, the US Dollar Index (DXY), continued to show a strong downward trend as traders anticipated the minutes of the Federal Open Market Committee, the Jackson Hole Summit and the Democratic National Committee event. The index plunged to $101.88, as risk-on investors took over.
Minutes of the FOMC
The US dollar is down against the majority of currencies. The EUR/USD rate, for example, has surged from a low in April of 1.06 to its high since December 2023, which is 1.1100. The rate has increased by more than 6% since its peak in 2023.
The pair GBP/USD has also surged, reaching 1.3000. This is its highest level since July. It’s much higher than the low point of last year (1.2038). USD/CHF, USD/JPY and other pairs of currencies have also fallen. The greenback is now down against the emerging markets’ currencies. The majority of Asian currencies are also down.
Investors have adopted a “risk-on” attitude in the markets, which has led to this price movement. CBOE VIX, the most widely-known gauge of fear in the United States has been falling for eight days straight and is close to its lowest level this year. Dow Jones, S&P 500 and other US indexes are also approaching record highs.
Investors expect the Federal Reserve will begin cutting rates at the meeting in September. The trend has accelerated since the US released several key economic statistics earlier in this month.
Non-Farm Payrolls (NFP), a measure of non-farm employment, revealed that in July the economy only created 114,000 new jobs while the unemployment rate increased to 4.3%. The wage growth rate continued to fall during the month. The Sahm Rule increased to 0.53% and raised the recession risk in the country.
In the US, a second report on mild inflation was released. The Consumer Price Index dropped from 2.9% to just 3.2% in July.
Another report released last week showed that manufacturing and industrial output continued to decline in July. The Fed could be justified to exit the current high-interest rate environment.
Federal Reserve minutes will provide the next important US dollar index information on Wednesday. The minutes of the Fed will give more information about the discussions that took place at the previous meeting.
Jackson Hole Symposium
DXY will react also to the annual Jackson Hole Symposium, a gathering of central banks and economists. The event will feature some of the best-known officials of institutions such as the European Central Bank, Bank of Japan and Bank of England.
Jerome Powell’s speech, as the Federal Reserve chief, will take center stage at the Friday meeting. Analysts expect Powell to confirm in this speech that interest rates will be cut as early as the September meeting.
The majority of analysts are expecting a rate reduction by 0.25% because recent data has been strong. Initial jobless claims, for example, have been falling two weeks in a row, indicating that the economy is not that bad.
A report from another source showed that retail sales in the country continued to soar, indicating that consumer spending remains strong.
Soaring US debt
Another major reason for the DXY’s crash is the US public debt, which has soared. No political party has committed itself to reducing it. The data shows the US public debt recently passed the $3.5 trillion threshold and that it is still on the rise.
Kamala Harris and Donald Trump both have no ideas about how to lower this debt. There were ideas in the Democratic National Platform on how to tackle the climate crisis, the gun violence and the gap between racial incomes, but there was no mention of reducing the debt.
Donald Trump’s plans would lead to increased debt. His pledges include more tax cuts and trade wars. He has also promised a $5,000 tax credit for children, but it will never be paid. Trump intends to increase defense spending. This will mean more money for the defense industry.
US Dollar Index Analysis
On the daily chart, the DXY Index formed a double top chart pattern earlier in the year around $106.12 levels. The neckline of the pattern was $104, which is its lowest level on 4th June this year. This pattern usually leads to more decline.
As the Exponential Moving Avgs. (EMA) of 50 and 200 days cross, it has formed a death-cross chart pattern. The index also moved down below its key support level of $102.15, which was at its lowest on August 5th.
Both the MACD (percentage price oscillator) and PPO have continued to fall while the momentum indicator is pointing upwards. The DXY will continue to fall as the sellers aim for the $101 key support.
As updates occur, this post DXY Index: US Dollar Forms a Death Cross Ahead of FOMC Minutes may be updated.
This site is for entertainment only. Click here to read more
