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Dollar Dominance Continues: What to Expect in Today’s Trading

Dollar Dominance

Explore U.S. inflation data, dollar strength/dominance, and market trends—including gold, currency, and oil forecasts for the next 24 hours.

The latest data on the Personal Consumption Expenditures (PCE) Price Index, considered the Federal Reserve’s favored inflation gauge, reveals a continued easing of inflationary pressures. The headline reading remained steady at 2.6% year-on-year (YoY) in December, meeting market expectations. Meanwhile, the core PCE increased from 3.2% YoY to 2.9% YoY, surpassing the estimated 3.0%.

Despite the softer PCE data, the Dollar Index (DXY) maintained its strength, closing at 103.47 last Friday and marking a fourth consecutive week of gains. The demand for the U.S. dollar has remained robust in 2024, a trend that may persist in the upcoming week.

Impact on Asian Markets: Dollar Demand Expected to Remain Strong

As Asian markets digest the latest U.S. inflation data, dollar demand will likely stay elevated. However, during the day, the DXY could initially slide, possibly supporting gold prices.

Dollar Index (DXY): What to Expect Today

Demand for the dollar has been robust since the beginning of the year, propelling the DXY from 100.70 at the end of 2023 to 103.80 last week. Federal Reserve Chairman Jerome Powell’s statements could further bolster the current bullish momentum with the first Federal Open Market Committee (FOMC) meeting of 2024 scheduled for February 1.

Central Bank Notes: Federal Reserve’s Current Stance

  • The Federal Funds Rate target range remains unchanged at 5.25% to 5.50%.
  • The Federal Reserve aims for maximum employment and inflation at a 2.0% rate over the longer run.
  • The Committee will continue to assess information for its implications on monetary policy.
  • The reduction of Treasury securities and agency debt holdings will continue per the announced plans.
  • The next FOMC meeting will be January 30-31, 2024.

Gold (XAU): Weak Bullish Bias

Gold prices may receive a lift as the DXY potentially slides lower, offering support amidst the strong dollar demand. The outlook for the next 24 hours suggests a weak bullish bias for gold.

Dollar Dominance Continues: What to Expect in Today’s Trading

Australian Dollar (AUD): Medium Bearish Bias

The Australian Dollar faces more robust demand for the U.S. dollar, leading to a fourth consecutive week of decline. With the upcoming FOMC meeting on February 1, the Aussie may encounter further selling pressure. The Reserve Bank of Australia (RBA) kept the cash rate target at 4.35%.

New Zealand Dollar (NZD): Medium Bearish Bias

Similar to the Aussie, the New Zealand Dollar has experienced a decline under 0.6100 due to increased demand for the U.S. dollar. The Kiwi may face additional selling pressure in the lead-up to the FOMC meeting on February 1.

Japanese Yen (JPY): Medium Bullish Bias

Despite Japan’s stable unemployment rate, the yen has weakened, bringing USD/JPY to 149. Furthermore, the Bank of Japan’s commitment to Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC) is designed to achieve a 2.0% price stability target.

Euro (EUR): Medium Bearish Bias

The Euro has faced more robust demand for the U.S. dollar, causing a drop below 1.0850. The European Central Bank (ECB) kept interest rates unchanged, emphasizing a data-dependent approach. The next ECB meeting will be on March 7, 2024.

Swiss Franc (CHF): Weak Bullish Bias

The Swiss Franc weakened in 2024, but the USD/CHF retreated sharply on Friday. The Swiss National Bank (SNB) maintained a policy rate of 1.75%. The outlook suggests a weak bullish bias for the Swiss Franc.

British Pound (GBP): Weak Bullish Bias

The Pound has shown resilience against the strong U.S. dollar, ranging between 1.2600 and 1.2800. The Bank of England’s Monetary Policy Committee (MPC) voted to maintain the Official Bank Rate at 5.25%. The next meeting is on February 1, 2024.

Canadian Dollar (CAD): Weak Bearish Bias

Stronger demand for crude oil has capped gains in USD/CAD, but the currency pair may remain under pressure. The Bank of Canada held its target overnight rate at 5.0%, focusing on risks to inflation.

Oil: Medium Bullish Bias

Crude oil prices experienced the most significant weekly gain since August 2023, driven by increased demand, supply disruptions in Libya and Russia, and geopolitical tensions. The outlook for the next 24 hours suggests a medium bullish bias for oil.

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