After steadily ticking higher for nearly three months, the U.S. Dollar Index (DXY) has cooled off by about 3% over the past month.
Why is the U.S. Dollar Index Falling?
This significant monthly decline comes as the U.S. 10-year bond yield finally started to ease after reaching levels last seen in May 2007, and the latest inflation print pointed to easing inflationary pressure.
This, in turn, has raised hopes of a softer stance from the Federal Reserve as traders brace for a slew of economic data. This includes Jobless Claims, New Home Sales, and ISM Manufacturing PMI data. Further, this week’s U.S. core PCE print will be keenly watched after the latest meeting minutes indicated the Fed did not discuss any interest rate cuts.
Furthermore, the postponed OPEC+ meeting has pointed to the diverging interests and economic priorities of its members, with Brent crude sliding below the $80 per barrel mark. While oil cuts by Saudi Arabia and Russia are expected to be extended through at least Q1 2024, the International Energy Agency (IEA) expects a modest surplus in oil supplies next year. Additionally, increased oil stockpiles in the U.S. could put downward pressure on oil prices.
The DXY is once again moving closer to the crucial support level of 101.5 and a break below this level could potentially mean a further sharp correction. Still, we have one more Fed policy meeting left in 2023. Markets will seek more light on the next trajectory for interest rates while investors sit on elevated cash levels – waiting for an opportunity to wade in.
Source: TradingView
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