US Dollar extends losses as soft inflation data confirms market’s September rate cut expectations
-
US
Dollar
loses
momentum
on
decelerating
CPI
figures. -
Markets now
are
more
certain
of
September
cut. -
US
Treasury
yields
fall,
making
traders
lose
interest
in
USD.
The
US
Dollar
measured
by
the
DXY
index
slipped
further
on
Thursday,
mainly
due
to
the
decelerating
inflation
figures
from
the
US
Consumer
Price
Index
(CPI),
which
makes
an
even
better
case
for
a
September
interest
rate
cut
by
the
Federal
Reserve
(Fed).
Though
markets
are
getting
increasingly
confident
about
the
rate
cut,
Fed
officials
remain
cautious
and
have
indicated
that
they
are
not
in
a
hurry
to
implement
changes
without
studying
data-driven
indicators
thoroughly.
Daily
digest
market
movers:
DXY
under
stress
as
inflation
softens
and
markets
expect
a
rate
cut
-
Keeping
with
his
earlier
stance,
Fed
Chair
Powell
reiterated
that
the
Fed’s
job
is
not
yet
done
when
it
comes
to
managing
inflation
and
even
suggested
the
Fed
has
more
work
to
do. -
He
indicated
that
the
confidence
to
lower
rates
based
solely
on
inflation
is
not
sufficient
yet,
but
also
pointed
out
that
the
Fed
doesn’t
need
inflation
to
be
under
2%
before
rate
cuts
begin. -
On
the
data
front,
the
US
Consumer
Price
Index
(CPI)
for
June
reported
a
decline
to
3%
YoY
from
3.3%
in
May
as
per
the
US
Bureau
of
Labor
Statistics
(BLS),
below
the
market’s
expectations.
The
core
measure
rose
by
3.3%
YoY,
lower
than
the
3.4%
expected. -
Amid
continued
signs
of
inflation
softening,
market
participants’
confidence
in
a
potential
rate
cut
in
September
strengthens,
placing
downward
pressure
on
USD.
DXY
technical
outlook:
Negative
outlook
intensifies
as
DXY
loses
100-day
SMA
The
DXY
index
losing
its
10-day
Simple
Moving
Average
(SMA)
has
stirred
up
a
negative
outlook
for
the
USD
with
both
the
Relative
Strength
Index
(RSI)
and
the
Moving
Average
Convergence
Divergence
(MACD)
indicators
swinging
into
negative
trajectory.
The
100-day
SMA
threshold
has
been
breached,
intensifying
the
bearish
tone.
The
next
potential
backstop
for
further
declines
could
be
noted
at
the
200-day
SMA
level,
providing
a
critical
bottom
for
the
market.
US
Dollar
FAQs
The
US
Dollar
(USD)
is
the
official
currency
of
the
United
States
of
America,
and
the
‘de
facto’
currency
of
a
significant
number
of
other
countries
where
it
is
found
in
circulation
alongside
local
notes.
It
is
the
most
heavily
traded
currency
in
the
world,
accounting
for
over
88%
of
all
global
foreign
exchange
turnover,
or
an
average
of
$6.6
trillion
in
transactions
per
day,
according
to
data
from
2022.
Following
the
second
world
war,
the
USD
took
over
from
the
British
Pound
as
the
world’s
reserve
currency.
For
most
of
its
history,
the
US
Dollar
was
backed
by
Gold,
until
the
Bretton
Woods
Agreement
in
1971
when
the
Gold
Standard
went
away.
The
most
important
single
factor
impacting
on
the
value
of
the
US
Dollar
is
monetary
policy,
which
is
shaped
by
the
Federal
Reserve
(Fed).
The
Fed
has
two
mandates:
to
achieve
price
stability
(control
inflation)
and
foster
full
employment.
Its
primary
tool
to
achieve
these
two
goals
is
by
adjusting
interest
rates.
When
prices
are
rising
too
quickly
and
inflation
is
above
the
Fed’s
2%
target,
the
Fed
will
raise
rates,
which
helps
the
USD
value.
When
inflation
falls
below
2%
or
the
Unemployment
Rate
is
too
high,
the
Fed
may
lower
interest
rates,
which
weighs
on
the
Greenback.
In
extreme
situations,
the
Federal
Reserve
can
also
print
more
Dollars
and
enact
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
when
credit
has
dried
up
because
banks
will
not
lend
to
each
other
(out
of
the
fear
of
counterparty
default).
It
is
a
last
resort
when
simply
lowering
interest
rates
is
unlikely
to
achieve
the
necessary
result.
It
was
the
Fed’s
weapon
of
choice
to
combat
the
credit
crunch
that
occurred
during
the
Great
Financial
Crisis
in
2008.
It
involves
the
Fed
printing
more
Dollars
and
using
them
to
buy
US
government
bonds
predominantly
from
financial
institutions.
QE
usually
leads
to
a
weaker
US
Dollar.
Quantitative
tightening
(QT)
is
the
reverse
process
whereby
the
Federal
Reserve
stops
buying
bonds
from
financial
institutions
and
does
not
reinvest
the
principal
from
the
bonds
it
holds
maturing
in
new
purchases.
It
is
usually
positive
for
the
US
Dollar.
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