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US Dollar extends gains on the back of rising US yields

November 6, 2023| Forex Market


  • DXY index trades near 105.20 with 0.15% gains.
  • US government bond yields are rising, rebounding from multi-week lows.
  • The economic docket had no relevant high-tier reports to offer on Monday.
  • Chair Powell will be on the wires on Wednesday.

The US Dollar (USD) traded flat on Monday, and the DXY index stands near 105.20, cushioned by a sour market mood and rising US bond yields.  For the rest of the week, investors will put an eye on Chair Powell’s speech on Wednesday to get further clues on the next Federal Reserve meeting in December.

The labor market in the United States showed signs of cooling down after the October Nonfarm  Payrolls report last Friday, which made investors practically take off the table an additional hike by the Fed in 2023. That being said, the bank will receive two additional inflation readings and a jobs report before the last meeting of the year. Incoming data will continue refining the model for market expectations. 

Daily Digest Market Movers: US Dollar losses limited by recovering yields

  • The US Dollar Index stands with 0.15% gains at 105.20.
  • The Greenback saw sharp losses on Friday after the US Nonfarm Payrolls report.
  • The US Bureau of Labor Statistics reported that the Nonfarm Payrolls from October came in lower than expected. The US added 150,000 jobs in October vs the expected 180,000 and decelerated from its revised previous figure of 297,000.
  • The Unemployment Rate came in at 3.9% in October, above the expected 3.8% and accelerated compared to its previous reading of 3.8%.
  • Average Hourly Earnings increased by 0.2% MoM but rose  4.1% YoY, higher than the expected 4% and its previous reading of 4.3%.
  • After reaching multi-week lows, the 2-year rate increased to 4.90%, while the longer-term 5 and 10-year rates rose nearly 4.57% and 4.64%, which seems to be limiting the downside for the USD.
  • According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are extremely low, around 10%. 

Technical Analysis: US Dollar Index bears take a breather; more downside on the horizon

Based on the daily chart, the DXY Index maintains a neutral to bearish technical perspective, suggesting that despite gaining momentum, bulls are not yet in full control. The Relative Strength Index (RSI) shows a downward trend below its midline, while the Moving Average Convergence (MACD) histogram shows bigger red bars. 

What gives the outlook neutrality is the index staying below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, indicating that the bulls still have the upper hand in the broader picture.

Support levels: 104.90, 104.70, 104.50.
Resistance levels: 105.50, 105.80, 106.00.



Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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