Market Data 
- DXY trended higher toward 106.00 on Friday.
- November’s NFP report showed a large beat on job creation.
- Sentiment data from December came in strong.
The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, gained toward 106.00 on Friday, driven by several key movers. The US Dollar remained flat after the release of Nonfarm Payrolls (NFP) data, while markets anticipated a potential December rate cut by the Federal Reserve (Fed).
The DXY found support at 105.50 and advanced toward 106.00 amidst this news. As a result of anticipation of a rate cut, a dovish stance from the Fed would, in general, cause a decline in the DXY. However, the market is leading to strength in the US Dollar despite this news.
Daily digest market movers: US Dollar sees some gains after NFP data
- The US Dollar Index advanced toward 106.00 as several key factors influenced its movement.
- The NFP surged by a noteworthy 227,000 in November, far exceeding market expectations of 200,000.
- The Unemployment Rate experienced a slight uptick to 4.2% in November.
- Monthly Average Hourly Earnings posted a steady 0.4% gain, meeting the previous month’s reading.
- Consumer Sentiment climbed to 74 in December, surpassing market projections.
- The University of Michigan’s 5-year Inflation Expectations rate declined to 3.1%.
DXY technical outlook: Bulls fights back, holds 106.00 level
The DXY halted its descent and gained ground today, indicating resilience. This move comes despite profit-taking activity. The index is currently aiming to recover its 20-day Simple Moving Average (SMA), and as long as it remains below there, it could exacerbate its short-term difficulties.
On the other hand, the bullish trend for the DXY remains robust, with resistance points located at 106.50 and 107.00. Support is anticipated within 105.50 to 106.00.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
