Investors await US inflation data to shape their expectation of easing cycle pace.
The consensus sees the easing cycle initiation from June after mixed NFP data on Friday.
The US won’t release any relevant reports in Monday’s session.
The US Dollar Index (DXY) is trading at 102.80 with mild gains in Monday’s session. Despite Powell’s dovish tone and mixed employment figures, the Federal Reserve’s (Fed) future stance on easing interest rates is expected to be influenced largely by US inflation data scheduled for release on Tuesday.
The US labor market saw a mixed performance in February. Despite the Unemployment Rate increasing, earnings figures mildly eased, while the job creation pace accelerated. Easing expectations didn’t see major changes, and the consensus still expects the first cut from the Fed in June.
Daily digest market movers: DXY sees some upside as markets brace for CPI
The dual effect of Powell’s speech coupled with mixed employment data seems to cap any upward movement of the USD.
Investors keep their expectations steady for a June interest rate cut by the Fed, predicting a total easing of 100 basis points for this year.
This week’s data poses a lopsided risk for the Greenback as weakened inflation or Retail Sales data from February will further support the argument for a June rate cut.
US Treasury bond yields are on the rise, trading at 4.51%, 4.07%, and 4.09% for the 2-year, 5-year and 10-year bonds, respectively.
DXY technical analysis: DXY displays a hint of bullish resurgence, bears still in charge
The indicators on the daily chart reflect a mixed sentiment in the market. The Relative Strength Index (RSI) remains in negative territory, but the positive slope posits a hint of bullish resurgence, indicating that the selling momentum could be weakening.
While the Moving Average Convergence Divergence (MACD) is in an area of flat red bars, this too implies that bears are losing their selling edge, possibly paving the way for a minor bullish correction.
The Simple Moving Averages (SMAs) scenario further emphasizes the bearish trend, with DXY charting beneath the 20, 100 and 200-day Simple Moving Averages. This underpins the dominant bearish market structure, but simultaneous signs of a bullish reversal cannot be utterly discounted.
Still, after losing 1% last week, the short-term outlook for the DXY remains more inclined to the bearish side. However, bears seem to be taking a breather, and if the bullish indications strengthen, buyers might attempt to seize control in the near future.
US Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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