After correcting by nearly 3% over the past five sessions, the U.S. Dollar Index (DXY) gained nearly 0.4% today. Still, DXY remains at its lowest point since October.
This week’s substantial correction came after the U.S. Fed hinted at three possible rate cuts next year. Further, Fed Chair Jerome Powell’s comments pointed to a likely end to the era of tightened policy.
Today’s bounce comes after John Williams, the President of the Federal Reserve Bank of New York, remarked that the talk of rate cuts is not happening “right now” and that it would be “premature” to enter speculation territory. While traders are already pricing in rapid rate cuts, the Fed may prefer to let the data do the talking before winding down what has been one of the fastest paces of rate tightening cycles in decades.
Additionally, the Bank of England and the ECB are yet to completely signal any potential decreases in interest rates. As China moves to prop up its economy, all eyes will be on whether Japan decides to pivot away from its historically-low interest rates.
While inflation still remains far off from the Fed’s targeted 2%, some pockets of the economy are already showing signs of weakness. The DXY still remains in a downward-sloping channel. If the weakness continues, immediate support can be expected at around the $101.3 level.
Source: TradingView
