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US Dollar (DXY) Pushing Higher as The Fed Starts to Tighten

US Dollar (DXY) Pushing Higher as The Fed Starts to Tighten

Nick Cawley, Senior Strategist

US Dollar Price, Chart, and Analysis

  • FOMC start tapering but leave themselves flexibility.
  • US Treasury yields nudge a touch higher.

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Fed chair Jerome Powell announced yesterday that the central bank would start reducing the number of bonds that it buys each month – tapering – with immediate effect, beginning the long process of normalizing monetary policy in the US. There was little to move the greenback sharply at last night’s meeting with the Fed leaving themselves flexibility on bond-buying, while the language used in the policy statement showed ‘transitory inflation’ replaced by ‘inflation is elevated, largely reflecting factors that are expected to be transitory’. A subtle shift in language but a move that suggests that the Fed may remain marginally more dovish than originally thought, despite the current level of inflation. US Treasury yields nudged one or two basis points higher, but remain rangebound, while Fed Fund futures now suggest two 25 basis point interest rate hikes by December 2022.

Fed chair Powell also said in his press conference that the central bank is prepared to ‘speed up or speed down’ asset purchases in the months ahead, leaving the Fed with maximum flexibility if the economy needs to be given a nudge or tightened further. Powell also highlighted that there is further to go before maximum employment is achieved, which now brings Friday’s US Labor Report (NFP) firmly into view. The US is expected to have created 450k new jobs, sharply higher than last month’s disappointing 194k. Average hourly earnings y/y are expected to increase to 4.9% from 4.6%, and any figure around this number will add further fuel to the inflation fire.

The US dollar basket (DXY) remains within a multi-month bullish channel which has produced a four big figure move higher since mid-June, while DXY is up nearly 5 points from its late-May nadir. All three simple moving averages remain in a positive set-up, suggesting a further move higher. The first level of resistance is close and around 92.28, while a break above 94.50/55 will see the USD back at levels last seen in November 2020. Support starts around 93.75 ahead of 93.45 and 93.23.

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US Dollar (DXY)Daily Price Chart November 4, 2021

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What is your view on the US Dollar – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.