United States Dollar Index falls to monthly lows near 101.00 following Democratic sweep
- US Dollar declines due to Democratic midterm sweep and falling oil prices.
- Strong ADP hiring numbers and steady ISM service growth continue to support Fed rate hike expectations.
- Markets price in an 82% chance of a December hike ahead of key jobless and payroll data.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its losses for the second consecutive day and reaching its monthly low of 101.20 during Asian hours on Thursday.
The Greenback faced heavy selling pressure following a Democratic sweep in the US midterm elections, which handed Democrats control of both houses of Congress and raised concerns over potential political gridlock in Washington. Additionally, market expectations of a swift end to the Middle East conflict triggered a sharp decline in oil prices, putting further downward pressure on the Greenback.
However, the US Dollar may gain support as resilient domestic economic data reinforced expectations for a Federal Reserve rate hike. The ADP employment report showed private-sector hiring increased by 86,000 in October, beating expectations of 69,000, despite September’s figure being revised down to 86,000 from 90,000. Meanwhile, the ISM Services PMI slipped slightly to 54.5 from 54.9, just below the 54.8 forecast, but remained firmly in expansion territory.
The CME FedWatch Tool indicates that markets are pricing in nearly an 82% chance of another rate hike in December. Investors are now awaiting key upcoming economic indicators, including weekly US Initial Jobless Claims on Thursday and the Nonfarm Payrolls (NFP) report on Friday.
Technical Analysis:
In the daily chart, Dollar Index Spot trades at 101.20. The index holds beneath both the nine-period and 50-period Exponential Moving Averages (EMAs), respectively, keeping the near-term bias bearish as recent rebounds have failed to reclaim these dynamic resistance lines. The 14-day Relative Strength Index (RSI) has slipped to roughly 43, below the neutral 50 mark, which hints at fading bullish momentum rather than outright oversold conditions.
On the topside, initial resistance is reinforced by the 50-period EMA around 101.27, with further supply expected at the nine-period EMA near 101.72; a daily close above the latter would be needed to ease immediate downside pressure. Until then, the technical posture suggests rallies toward these moving averages are likely to attract sellers, leaving the Dollar Index vulnerable to renewed slippage while momentum remains subdued.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
(The technical analysis of this story was written with the help of an AI tool. Know more.)