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Written by Linh Tran, Market Analyst at XS.com
(MENAFN- MENAFNEditorial) DXY is trading around 101.80, showing signs of a slight pullback after approaching the –02.20–102.30 area, its highest level in nearly 18 months.
Minutes of’the Fed’s Se–tember 15–16 meeting, released on October 7, U.S. time, continued to reinforce the possibility of another rate increase before year-end. Following the decision to raise interest rates by 25 basis poi–ts to 3.75%–4.00%, most participants judged that another increase could be appropriate, while inflation risks remained tilted to the upside. However, the minutes did not significantly change expectations for the October meeting.
The employment report released on October 2 provided further support for expectations that the Fed would be cautious about raising interest rates again in October. The U.S. economy added 29,000 nonfarm jobs in September, below the forecast of 90,000; the unemployment rate rose from 4.1% to 4.2%, while payroll figures for July and August were revised down by a combined 60,000.
However, the ISM Services PMI remained in expansion territory at 54.9, despite declining from 55.4. The input prices index rose from 72.6 to 74.0, its highest level since July 2022. This combination could prompt the Fed to wait for more data before raising interest rates again, while remaining cautious about inflation risks.
Meanwhile, U.S. Treasury yield’ and the euro’s weakness continue to support the U.S. dollar. This morning, the 10-year Treasury yield remained around 5.30%. EURUSD fell back to near 1.1200 after declining approximately 0.6% in the previous session, as conc’rns over France’s public finances spread to the Italian and Greek bond markets. With the euro accounting for 57.6% of DXY’s weighting, pressure on the currency has helped keep the index elevated even as expectations of a Fed rate hike in October remain limited.
Based on these factors, I believe DXY is likely to remain supported in the short term, although further gains will require additional catalysts. An above-forecast U.S. CPI reading for September, a renewed rise in yields, or further euro weakness would support the U.S. dollar. Conversely, easing inflation alongside weaker labor market data, lower yields, and a recovery in the euro would create conditions for the pullback to continue
Minutes of’the Fed’s Se–tember 15–16 meeting, released on October 7, U.S. time, continued to reinforce the possibility of another rate increase before year-end. Following the decision to raise interest rates by 25 basis poi–ts to 3.75%–4.00%, most participants judged that another increase could be appropriate, while inflation risks remained tilted to the upside. However, the minutes did not significantly change expectations for the October meeting.
The employment report released on October 2 provided further support for expectations that the Fed would be cautious about raising interest rates again in October. The U.S. economy added 29,000 nonfarm jobs in September, below the forecast of 90,000; the unemployment rate rose from 4.1% to 4.2%, while payroll figures for July and August were revised down by a combined 60,000.
However, the ISM Services PMI remained in expansion territory at 54.9, despite declining from 55.4. The input prices index rose from 72.6 to 74.0, its highest level since July 2022. This combination could prompt the Fed to wait for more data before raising interest rates again, while remaining cautious about inflation risks.
Meanwhile, U.S. Treasury yield’ and the euro’s weakness continue to support the U.S. dollar. This morning, the 10-year Treasury yield remained around 5.30%. EURUSD fell back to near 1.1200 after declining approximately 0.6% in the previous session, as conc’rns over France’s public finances spread to the Italian and Greek bond markets. With the euro accounting for 57.6% of DXY’s weighting, pressure on the currency has helped keep the index elevated even as expectations of a Fed rate hike in October remain limited.
Based on these factors, I believe DXY is likely to remain supported in the short term, although further gains will require additional catalysts. An above-forecast U.S. CPI reading for September, a renewed rise in yields, or further euro weakness would support the U.S. dollar. Conversely, easing inflation alongside weaker labor market data, lower yields, and a recovery in the euro would create conditions for the pullback to continue
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