The US Dollar faced significant selling pressure after disappointing ADP figures from June, causing markets to increase their bets on a Fed rate cut in September. The FOMC meeting minutes from June also indicated that members acknowledged a slowdown in the economy.
The Dollar Index (DXY) dropped to its lowest level since June 18 at around 105.20 following the release of the ADP labor market data and the FOMC meeting minutes. Signs of disinflation and a cooling labor market in the US economy are becoming more apparent, leading to speculation about a potential rate cut in September. Despite this, Federal Reserve officials remain cautious and continue to emphasize a data-dependent approach.
Private sector employment in the US, as reported by ADP, showed a decrease with a rise of 150K in June, lower than the expected 160K. The upcoming June Nonfarm Payrolls data due on Friday is anticipated to decrease to 190k from 272k in May, according to Bloomberg consensus. Whisper numbers, however, suggest a figure closer to 198k.
In the FOMC meeting minutes, Federal Reserve officials noted signs of a slowing US economy and easing price pressures. While the market perceives a 70% likelihood of a rate cut in September, Fed officials have not committed to any cuts until further assessment.
The technical outlook for the DXY has turned negative in the short term, with indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) now in negative territory. Bulls have lost their position above the 20-day Simple Moving Averages (SMAs), and potential fallbacks toward the 105.00 and 104.50 zones are expected.
Interest rates play a crucial role in the strength of a country’s currency, with higher rates generally attracting global investors. Higher interest rates can also weigh on the price of Gold, as it increases the opportunity cost of holding Gold instead of investing in interest-bearing assets. The Fed funds rate, set by the Federal Reserve, influences market expectations and shapes financial market behavior.
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