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US Dollar reverses its course, weighted by falling US yields

November 8, 2023| Forex Market


  • After reaching a high of 105.90, the DXY index declined to 105.55.
  • Long-term US government bond yields are declining after rebounding from multi-week lows.
  • Chair Powell didn’t comment on monetary policy on Wednesday.

The US Dollar (USD) accelerated its gains in Wednesday’s session with the DXY index, which measures the value of the US Dollar versus a basket of global currencies, escalating to a high of 105.90 earlier in the session. That said, the index reversed its course and declined toward 105.55, weighed down by falling Treasury yields. No highlights were seen during the session.

Markets remain quiet this week as investors await fresh catalysts to place their bets on the next Federal Reserve (Fed) decision in December. Several officials were on the wires on Monday and Tuesday but didn’t provide any highlights. The focus seems to have turned to next week’s October inflation figures from the US.

Daily Digest Market Movers: US Dollar upside limited as US yields lose traction

  • The US Dollar Index stands with mild gains at 105.55.
  • No high-tier reports will be released this week. Markets await next week’s inflation figures from the US and are still digesting last Friday’s 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 accelerating 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% but beneath the previous reading of 4.3%.
  • Meanwhile, the 2-year Treasury rate is flat at 4.90%, while the longer-term 5 and 10-year rates declined to 4.53% and 4.52%, respectively, which seems to be limiting upside for the USD.
  • According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are extremely low, around 10%. 
  • Escalating tensions arise in the Middle East after an American plane was shot down by Yemeni soldiers, news that may provide a cushion to the Greenback.

Technical Analysis: US Dollar Index struggles to gain momentum, bears around the corner

Based on the daily chart, the DXY Index shows indications of bullish exhaustion, leading to a neutral to bearish technical outlook. The Relative Strength Index (RSI) shows a weakening bullish trend with a negative slope below its midline, while the Moving Average Convergence (MACD) exhibits neutral 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: 105.80, 106.00, 106.15.



Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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