Market Data 
- US Dollar weakens following disappointing New York manufacturing data, which contracted unexpectedly in October.
- Fed officials remain cautious with Kashkari favoring modest rate cuts and Waller urging a slower pace.
- Markets are pricing high odds of 25 bps cuts in November and December.
The US economy is facing mixed signals, with certain sectors indicating a slowdown, while others remain robust. Despite this, the Federal Reserve (Fed) has signaled that its approach to easing monetary policy will be guided by emerging economic indicators.
The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, struggles for traction, hovering above 103.00. A disappointing New York manufacturing report, indicating an unexpected contraction in October, has weighed on recent US Dollar momentum.
Daily digest market movers: US Dollar declines amid Fed caution and mixed data
- Fed officials Kashkari and Waller express caution, suggesting a more gradual pace of rate cuts than previously expected.
- Strong jobs and CPI data have tempered expectations of aggressive Fed easing, and 125 bps of total easing over the next 12 months.
- The New York Empire State Manufacturing Index for October was released, showing a significant decline into contraction at -11.9. This contrasts with the previous increase of 11.5 and falls well below expectations, which had anticipated a modest rise to 2.3.
- On Thursday, markets will follow Retail Sales figures, which might shake the USD dynamics and Fed bets.
DXY technical outlook: DXY index shows bullish momentum, nears resistance
Technical analysis for the DXY index suggests a positive outlook, with indicators gaining momentum. The index has crossed above the 100-day SMA and is approaching the 200-day SMA at 103.80, which will be a key resistance level. Still, the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators flash overbought signals, indicating potential profit-taking.
Support lies at 103.00, 102.50 and 102.30. Resistance levels are located at 103.30, 103.50 and 104.00.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
