The DXY is currently testing the major red downward trend line. A break above this trend line will allow the index to re-test the 61.8% Fibo rate of 104.78. It is extremely difficult to call the FX markets now but the 50-day MA looks set to cross above the 200-day MA which will be a bullish golden cross indicator. I believe the dollar will continue to gain until the Fed starts cutting rates.
The Federal Reserve (Fed) opted to keep the federal funds rate unchanged at 5.25%, as expected, but the sparks started flying during the FOMC press conference. Doves were let out of the box in the press conference with FOMC dot plot shows that the Fed will likely cut rates three times this year, the first will most likely be at in June. The dollar fell after the dovish FOMC remarks however the dollar index climbed aggressively on Thursday and Friday off the back of an unexpected rate cut by the Swiss central bank, ECB speculation for a rate cut as well as a battered Japanese Yen that has not stopped tumbling since the BOJ’s most recent rate hike. Additionally, the Bank of England also opted to keep their rates unchanged at 5.50% last week.
The Fed’s preferred inflation metric, the Personal Consumption Expenditures (PCE), is expected to fall below the Fed’s 2% inflation to 1.8% in 4Q2023, down from 2.6%. A weak PCE print will undoubtedly spark even more bets for a rate cut sooner rather than later. Additionally, the 4Q2023 US GDP results are expected to show quarter-on-quarter growth of 3.2%. We’ve stressed this before, there is technically no reason for the Fed to cut rates; US stock indices are at all-time highs, financial conditions are looser than before the Fed started hiking rates in 2022, the US economy is still growing and inflation is still well above the Fed’s 2% target. The Fed will be forced to cut rates after a stress event in the market and also bear in mind that it is election year so the Fed will have to maintain the creditability of the current political regime in the US.
The Federal Reserve (Fed) opted to keep the federal funds rate unchanged at 5.25%, as expected, but the sparks started flying during the FOMC press conference. Doves were let out of the box in the press conference with FOMC dot plot shows that the Fed will likely cut rates three times this year, the first will most likely be at in June. The dollar fell after the dovish FOMC remarks however the dollar index climbed aggressively on Thursday and Friday off the back of an unexpected rate cut by the Swiss central bank, ECB speculation for a rate cut as well as a battered Japanese Yen that has not stopped tumbling since the BOJ’s most recent rate hike. Additionally, the Bank of England also opted to keep their rates unchanged at 5.50% last week.
The Fed’s preferred inflation metric, the Personal Consumption Expenditures (PCE), is expected to fall below the Fed’s 2% inflation to 1.8% in 4Q2023, down from 2.6%. A weak PCE print will undoubtedly spark even more bets for a rate cut sooner rather than later. Additionally, the 4Q2023 US GDP results are expected to show quarter-on-quarter growth of 3.2%. We’ve stressed this before, there is technically no reason for the Fed to cut rates; US stock indices are at all-time highs, financial conditions are looser than before the Fed started hiking rates in 2022, the US economy is still growing and inflation is still well above the Fed’s 2% target. The Fed will be forced to cut rates after a stress event in the market and also bear in mind that it is election year so the Fed will have to maintain the creditability of the current political regime in the US.