US Dollar Tanks on Tilting Fed Rate Hike Guidance Ahead of US GDP. Will USD Recover?


US Dollar Wobbles After China Cut Rates and Ahead of Jackson Hole. Will USD make New Highs?

The US Dollar made a fresh high before it gave up some ground today after rate were reduced in China. The upcoming Jackson Hole symposium may provide cluses for USD direction.

US Dollar, USD, DXY, China, CSI 300, PBOC, Crude Oil, Gold, Jackson Hole – Talking Points

  • The US Dollar made a new high before Chinese rate cuts undermined it
  • The PBOC were expected to lower rates, but they didn’t stick to the script
  • All eyes on Jackson Hole from Thursday.Will USD resume its uptrend?

The US Dollar pulled back from a five-week high after the Peoples Bank of China (PBOC) cuts rates today.

The 1-year prime loan rate was reduced to 3.65% from 3.7%, while the 5-year prime loan rate was lowered to 4.30% from 4.45%. The moves were slightly different to markets forecasts eyeing 10 basis-point reductions for both.

The moves lifted China’s CSI 300 and Hong Kong’s Hang Seng indices, while other APAC equities languished. The commodity and growth linked Aussie and Kiwi Dollars got a boost while the US Dollar saw some selling pressure.

The cuts come in the face of continuing economic headwinds from a zero-tolerance Covid-19 policy and property sector woes. Residential mortgages are most impacted by the 5-year rate and the 15-basis point change reflects an attempt to restore borrower confidence.

The detraction in activity has been compounded recently by dry weather that has cut hydro electricity production.

China’s Sichuan province is an industrial powerhouse that has been hit particularly hard by the energy outages. Limits on usage for manufacturers has been extended from Saturday to this Thursday.

Crude oil slipped in the Asian session as speculation mounts that Iranian supply might be coming back online to offset the loss of Russian production. The Brent futures contract dipped under US$ 95.50 bbl and the WTI contract is below US$ 90 bbl.

Gold has continued lower after Treasury yields added a few basis points across the curve to start the week. It is trading around US$ 1,744 an ounce at the time of going to print.

The market will be focused on the Jackson Hole symposium which begins on Thursday. This time last year the Fed labelled accelerating inflation as transitory. This year, the alarms bells are ringing about eye-wateringly high inflation becoming entrenched.

The language will be closely watched for clues on how determined the central bank is to get inflation back toward their goal of around 2%. Previous gatherings have had significant impacts on policy expectations.

Perhaps more bigger-picture views will be expressed rather than stipulating what to specifically expect at the September Federal Open Market Committee (FOMC) meeting.

Wall Street futures are pointing toward a soft start to their cash session.

The Chicago Fed’s national activity index will be released later today.

The full economic calendar can be viewed here.

USD (DXY) Index Technical Analysis

The US Dollar (DXY) index appears to have regained momentum after piecing above two recent peaks toward the 20-year high at 109.30. A level that may offer resistance.

Bullish momentum might be supported by several simple moving averages (SMA)that remain below the price and maintain positive gradients.

On the downside, support might lie at the break points of 107.43 and 106.93.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter





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