The US Dollar Index (DXY) falls today ahead of the Federal Reserve’s decision.
It is expected that the bank will leave interest rates unchanged and commit to do more.
The decision comes a day before the non-farm payrolls in October.
The US Dollar Index (DXY) is trending higher as traders continue to focus on the US elections and the potential for a stalemate in Washington. The index also takes into account the Fed’s interest rate decision today ahead of tomorrow’s non-farm payroll numbers.
US dollar index falls ahead of the Fed
Fed interest rate decision in the eye
The Federal Open Market Committee (FOMC) began its meeting yesterday as most market participants focused on the election. The committee, chaired by Jerome Powell, will announce its decision at 15:30 GMT.
The meeting comes at a time when the country is heading for a standstill. The reason for this is that the Democrats will continue to control the House of Representatives while the Republicans will control the Senate. This means that Joe Biden, who is likely to win the White House, will have less chance of pushing through his ambitious plans. In a statement, Kir Juckes, an analyst with Société Générale, said
“The markets are waiting for clarity, but I still believe that the Fed is more important to the dollar than who lives in the White House.
Analysts interviewed by Reuters and Bloomberg expect the bank to leave interest rates at 0.25%. Given the standstill and signs of a slowdown in economic growth, they believe the Fed will also continue its policy of quantitative easing. They also expect the Washington bank to push for more stimulus to boost the economy. In a note, Julian Emmanuel of the BTIG said
“Powell himself has made it very clear that the most important thing is to get cash into people’s hands. I think he needs to [comment]and I think it could be a negative market”.
The meeting also comes at a time when the American economy is facing its greatest challenges as the number of Covid 19 cases increases. Recent economic figures have also indicated that growth is slowing down. For example, data from ADP showed that the change in non-farm employment in October fell to 365,000 from 749,000 in September. In the same month, the ISM PMI for non-manufacturing fell from 57.8 to 56.6.
Most importantly, however, the Federal Reserve’s decision on the federal funds rate comes a day ahead of the non-farm payroll numbers in October. The average estimate is that the unemployment rate will fall from 7.9% to 7.7%, with the economy creating 600,000 new jobs. Analysts also predict that the average hourly wage will drop from 4.7% to 4.6%.
Technical Analysis of the US Dollar Index
Technical table of the US Dollar Index
The Dollar Index is trading at $93.38, down from yesterday’s high of $94.30. The price has also moved below the 28-day and 14-day exponential moving averages. It is also between the first and second support of the Andrews pitchfork, while the Average True Range (ATR) has risen in signs of higher volatility. A move below $93, the lower side of the pitchfork, means that bears have made their way through, which will push the index significantly lower.