The US Dollar Index (DXY) stabilizes in positive territory at the start of a new trading week, opening Tuesday at 103.99 points.
Traders overlook recent US job reports amidst statements indicating that the European Central Bank (ECB) might be the first to cut interest rates in Q1 2024, preceding the Federal Reserve’s potential move in Q2 or Q3 2024. This reinforces expectations of a prolonged period of high-interest rates, supporting the strength of the dollar.
Market attention is also focused on today’s consumer price index data, followed by the Federal Reserve Committee’s interest rate decision on Wednesday, alongside policy updates from at least three major central banks for the remainder of 2023.
Simultaneously, concerns about a contraction grow in Chinese markets. The European Central Bank may face a similar challenge as inflation rapidly declines in Europe, with officials indicating a cautious approach to European interest rate cuts.
Currently, the US Dollar Index faces pressure from the Japanese Yen after Bank of Japan Governor Kozo Ota hinted at an upcoming shift in monetary policy.
The Bank of Japan has maintained negative interest rates for decades, leading to a more than 1.25% appreciation of the Japanese Yen against the US Dollar, exerting downward pressure on the US Dollar Index and breaking its positive streak this week.
In my view, the US dollar benefited from higher-than-expected non-farm payrolls and lower-than-expected unemployment in November, signaling a resilient job market and easing expectations of imminent interest rate cuts.
Markets now await new signals from today’s US inflation report, the Federal Reserve’s interest rate decision on Wednesday, with expectations that rates will remain unchanged in December.
This may lead to a short-term sideways movement, but the dollar is likely to remain positive in the medium and long term.