The US Dollar strengthened as the week drew to a close, buoyed by a combination of positive economic data and a rate cut by the Federal Reserve. The US Dollar Index (DXY), which tracks the greenback’s performance against a basket of six major currencies, saw notable gains on Friday, closing a week of mixed signals with an optimistic outlook.
The boost for the US Dollar came after the University of Michigan’s latest Consumer Sentiment Index showed a sharp increase for November, rising to 73 from 70.5 in October. This unexpected jump in consumer confidence was complemented by positive economic projections, as the Federal Reserve’s decision to lower interest rates by 25 basis points (bps) appeared to signal the continuation of easing policies amid ongoing concerns about global growth.
Economic Optimism and Fed’s Neutral Stance
The Federal Open Market Committee (FOMC) lowered rates despite ongoing challenges in the labor market. However, the central bank expressed confidence in the overall economic growth. The rate cut came as a response to weaker jobs data but was accompanied by forecasts predicting a solid 2.4% GDP growth for the fourth quarter, according to the Atlanta Fed’s GDPNow model.
The Fed’s cautious stance on future policy shifts was emphasized by Federal Reserve Chairman Jerome Powell’s comments during the FOMC meeting. While acknowledging that inflation remains somewhat elevated, Powell indicated that economic growth and productivity are supportive of the ongoing low inflationary environment, which could keep the USD on a positive trajectory.
Consumer Confidence and Inflation Expectations
The positive sentiment from the UoM data provided further support to the US Dollar. Not only did the Consumer Sentiment Index improve, but the inflation expectations were also mixed. The one-year inflation forecast edged down slightly to 2.6%, while the five-year outlook increased to 3.1%. This balanced outlook on inflation reinforced the notion of a stable economic environment, with the consumer being cautiously optimistic about the future.
DXY Technical Outlook: Continued Bullish Momentum
The DXY’s technical indicators point to continued bullish momentum. The Relative Strength Index (RSI) remains deep in positive territory, signaling that the greenback could have more room to run. Moreover, the DXY’s recent bullish crossover between the 200-day and 20-day Simple Moving Averages (SMAs) suggests that the upward trend could continue, with the next resistance level eyed at 105.50.
Despite a brief pullback earlier in the week, the DXY regained support at its 200-day SMA, and with the MACD still showing lower red bars, the bullish sentiment remains intact. If the data continues to show economic strength, the US Dollar could see further appreciation in the weeks ahead.
As the markets digest the Fed’s rate cut and the latest consumer sentiment data, the US Dollar remains in a strong position, poised to close out the year on a high note. With inflation expectations stable and economic growth forecasts solid, the DXY’s positive momentum could push the dollar to new heights in the near future.
