DXY: U.S. Dollar Weakens Amid Mixed Fed Signals

As expected, the U.S. Dollar Index (DXY) weakened to the 105 level after briefly testing the 106 resistance mark over the past week. The decline came amid mixed signals from the U.S. Fed and indications of a potentially weakening labor market.

Inflation Eases, Rate Cut Hinted

Earlier this week, Fed Chair Jerome Powell noted that recent economic data indicated that inflation was easing. At the same time, Powell reiterated the need for more convincing data before moving towards lower rates. Speaking at the European Central Bank Forum on Central Banking, Powell acknowledged that the U.S. central bank had made substantial progress in reducing inflation. While he did not specify the potential timing of the first rate cut, the comments buoyed hopes of a rate cut this year.

ADP Numbers

The latest numbers from ADP indicate that private nonfarm payrolls rose by 150,000 last month, lower than the street’s expectations of an increase of 163,000. In contrast to this data and Powell’s comments, the latest FOMC minutes indicate that the Fed is still undecided about the future direction of interest rates, which are currently at nearly two-decade highs.

FOMC Minutes

In their June meeting, Fed officials echoed Powell’s stance that inflation was moving in the right direction. Still, the FOMC minutes indicated that Fed officials lacked the confidence to lower rates. According to CNBC, some meeting participants indicated a willingness to opt for higher rates if inflation does not ease further.

What Is the Outlook for the U.S. Dollar Index?

Not surprisingly, the DXY has seesawed between the 104-106 zone for the last three months. The monthly chart setup, though, suggests sharp gains for the DXY if the index manages to stay above the 106 mark over the coming weeks. In the short term, its next trajectory could be decided by the nonfarm payrolls numbers due later today.

Read full Disclosure