US Dollar Index (DXY) News: Dollar Rallies as Fed Hints at September Rate Cut

Dollar Rallies as Central Banks Reshape Currency Markets

The U.S. Dollar Index climbed on Thursday, reversing its previous day’s decline as central banks continued to influence currency markets. At 14:13 GMT, the index, which tracks the greenback against six major peers, is trading 104.138, up 0.123 or 0.12%.

Fed Signals Potential Rate Cut

Federal Reserve Chairman Jerome Powell hinted at a possible September rate cut following the central bank’s July meeting. Powell stated, “The broad sense of the committee is that the economy is moving closer to the point at which it would be appropriate to reduce our policy rate.” This announcement led to a decline in Treasury yields, with the 10-year yield falling below 4% for the first time since February.

Labor Market Shows Signs of Weakness

Initial jobless claims increased to 249,000 for the week ended July 27, reaching an 11-month high. This rise suggests a potential softening in the labor market, although claims tend to be volatile during this time of year. The slowdown appears to be driven by low hiring rather than increased layoffs, as the layoffs rate in June was the lowest in over two years.

Manufacturing Sector Contracts Further

The Manufacturing PMI registered 46.8% in July, down 1.7 percentage points from June, indicating a deeper contraction in U.S. manufacturing activity. Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted, “Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions.”

Market Forecast

The dollar’s rally, coupled with signs of economic softening and potential rate cuts, creates a complex market picture. While the greenback is currently strengthening, the possibility of rate cuts and ongoing economic challenges point to a bearish outlook for the dollar in the medium term. The upcoming U.S. jobs report for July could significantly impact the market and potentially accelerate the dollar’s downward movement. Traders should prepare for a potentially bearish trend in the dollar as economic pressures mount and rate cut expectations grow.

Technical Analysis

The U.S. Dollar Index is currently trading on the weakside of a key pivot at 104.220 and the 200-day moving average at 104.251, making both resistance.

A sustained move under 104.220 will signal the presence of sellers. If this creates enough downside momentum then look for further selling pressure to fuel a break into the main bottom at 103.650.

Overtaking and sustaining a rally over 104.259 will indicate the presence of buyers. This could lead to an acceleration into the 50-day moving average at 104.848.