The US dollar collapses as markets gear up for pivotal US inflation data. The data may influence the Federal Reserve’s monetary strategy. The recent decline in the dollar is linked to lower yields on US Treasuries, which mirror the Federal Reserve’s more prudent approach to raising interest rates.
Key Inflation Figures in Focus
The dollar index stands at 105.69, slightly above its lowest point since September 25. All eyes are now on the US Consumer Price Index for September, set to be released at 12:30 GMT. The consensus predicts a 0.3% month-over-month rise and a 3.6% year-over-year increase, signalling cooling inflation compared to August.
Fed’s Next Moves
The minutes from the Fed’s recent meeting unveiled differing opinions among policymakers, contributing to the dollar’s lacklustre performance. A lower-than-anticipated inflation figure might imply the conclusion of the Fed’s tightening cycle, putting pressure on both US Treasury yields and the dollar. Conversely, a surprise inflation upswing could heighten expectations of further rate hikes.
Forex Trading: Market Pricing and Currency Pairs
The CME FedWatch tool indicates that futures markets assign a 26% likelihood of a 25 basis point increase in the Fed funds rate by December. Currency pairs like USD to EUR and USD to GBP have maintained relative stability, although the pound displayed slight weakness due to sluggish British economic growth figures.
Short-Term Forecast: Cautiously Bearish
The Fed’s careful approach in the latest minutes is tilting the dollar in a bearish direction. Additionally, the market’s nervous anticipation of inflation data has a substantial impact on the dollar’s condition. Although an unexpected rise in inflation could alter the sentiment, present indicators and market pricing imply a more cautious outlook for the US currency.
USD Base Rate: Technical Analysis
The present daily DXY price of 105.705 surpasses both the 200-day moving average at 103.188 and the 50-day moving average at 104.620. This suggests a positive sentiment in both the short and long run.
The index is just slightly higher than its minor support level at 105.691, which further supports a bullish interpretation.
However, the market is also trading on the weak side of a long-term uptrending line. This is potentially bearish and could trigger an acceleration to the downside. The US dollar collapsed with a 50-day moving average at 104.620, the first key target level.