The U.S. dollar surged on Thursday, bouncing back from earlier losses following the Federal Reserve’s decisive half-percentage-point rate cut. This move signalled the beginning of a monetary easing cycle focused on keeping unemployment low as inflation eases.
Chair Jerome Powell emphasised the central bank’s dedication to its dual goals of managing employment and inflation.
Markets had mostly expected this cut, with many already pricing in a 50 basis-point reduction following earlier media leaks. However, it caught some economists off guard, as they had predicted a smaller 25 basis-point adjustment.
Despite the varied expectations, traders reacted to the decision with a ‘buy the rumour, sell the fact’ approach, leading the dollar to recover losses from earlier in the week.
In early Asian trading, the U.S. dollar index climbed to 101.03, rebounding from a one-year low. The dollar gained 0.58% against the yen, reaching 143.12, while the euro edged down 0.04% to $1.1113 after hitting a three-week high the previous day.
The U.S. dollar index (DXY) climbed today, closing at 100.865 after reaching an intraday high of 101.155. Traders are reacting to expectations of more rate cuts from the Federal Reserve, with policymakers hinting at a potential half-percentage-point reduction by year’s end and further cuts projected through 2026.
Technically, the index has broken above the 100.600 resistance level, a pivotal short-term indicator. The 5, 10, and 30-period moving averages are all trending upward, signalling bullish momentum. The MACD has also turned sharply positive, pointing to potential further gains ahead.
Support holds at 100.200, near yesterday’s low, with immediate resistance just above 101.200. While long-term projections remain unclear, optimism around a soft landing for the U.S. economy has boosted sentiment, hinting at future dollar weakness.
The outlook for the dollar remains cautious. With the Fed’s commitment to continued easing and improving global economic conditions, there’s potential for further declines in the coming year.
Traders will keep evaluating data, particularly how soft economic landings could pressure the greenback.
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