US Dollar Index News: DXY Skyrockets to 11-Week High

Key Points

• Dollar reaches highest level in three months.
• Euro dips amid Germany’s economic stagnation.
• Powell’s cautious stance impacts March rate cut odds.

Fed’s Repricing Shakes Markets

The U.S. dollar attained its highest level in nearly three months against major currencies, spurred by reduced expectations of Federal Reserve rate cuts. This shift follows a robust U.S. jobs report, which substantially exceeded predictions, propelling U.S. bond yields and bolstering the dollar. The dollar index hit 104.443, marking its peak since November 17.

At 14:48 GMT, the U.S. Dollar Index (DXY) is trading 104.381, up 0.419 or +0.40%.

Yields and Euro’s Decline

The two-year Treasury yield climbed to 4.433%, partly influenced by Fed Chair Jerome Powell’s remarks hinting at a delay in rate cuts. Concurrently, the euro dipped to $1.0747, its lowest since December, amid concerns over the Eurozone’s economic health, especially with Germany’s export slump.

Powell’s Stance and Market Reassessment

Powell’s interview on CBS’s “60 Minutes” emphasized a cautious approach towards rate adjustments, focusing on sustainable inflation reduction. This stance has led markets to reassess the likelihood of a March rate cut, which has now significantly diminished.

Global Currency Movements

Japan’s yen dropped to its lowest since early December, reflecting the dollar’s strength. In contrast, the British pound weakened to $1.2576, unaffected by revised unemployment data indicating a lower-than-expected rate.

Outlook and Key Data

Fed fund futures now indicate about 120 basis points of easing for this year, a reduction from previous forecasts. Investors’ focus shifts to the ISM non-manufacturing survey for insights into the U.S. economy’s state in January.

Market Forecast

Given the current trends, a bullish outlook for the U.S. dollar seems plausible, with reduced expectations of imminent Fed rate cuts and global economic dynamics favoring dollar strength in the short term.

Technical Analysis

The U.S. Dollar is trading sharply higher for a second consecutive day on Monday as hawkish remarks from Fed Chairman Jerome Powell on the timing and the number of rate cuts in 2024 sent shorts scrambling to cover their positions.

Technically, the index is rocketing higher after crossing decisively to the strong side of the 200-day moving average at 103.559. This move turned the longer-term trend higher.

Since there is nothing but daylight on the daily chart, this rally could possibly extend into static resistance at 105.628 over the near-term. New support is the 200-day moving average.