Dollar Index Holding On Its 97 Handle, US FED In Focus

The dollar index (DXY) seems to found significant support from its 97.00 handle, after previous pressure from trade tensions and weak economic data during the start of December caused the index to record the most considerable intraday losses since October. Last Friday, with the help of the unexpected hike in US Non-Farm Payroll (NFP) data, the index was able to make 30 pips rebound from the handle.  

However, the index had a bad start this week, currently testing back the crucial handle as market participants now wait for the last Federal Reserve (Fed) policy meeting for this year later today. After making three consecutive rate cuts this year, from the range of

2.25% – 2.50% to 1.50% – 1.75%, the central bank is widely expected to keep their interest rate unchanged during today’s meeting. 

The market’s primary focus is placed on the Fed’s monetary policy statement, as well as the speech led by Chairman Jerome Powell. Investors are trying to gain insight on the Fed’s current and future market expectations as well as their stance towards their monetary policy. Previous comments from Powell stated that the rate cut in September proved to be sufficient for the US economy.

Regardless, investors, especially those in the FX market, are always up to date with the latest economic performance before making any investment decisions. Earlier this month, the US manufacturing sector was still showing signs of contraction, according to the ISM. Moreover, one other factor that would not be missed out in Powell’s statement would be current trade tensions and the underlying risks.

Before the Fed’s meeting, the US will also release its monthly Core Consumer Price Index (CPI) data. The inflationary data is bound to affect the Fed’s future policy stance as the central bank’s primary focus is to keep inflation in line with their 2% objective. 

One other event to look out for would be US President Donald Trump’s decision on the December 15 tariff. Tensions can escalate quickly, depending on whether or not the additional US tariff on Chinese goods would be approved or put on hold. Either decision will determine the progress of future trade negotiations between the two economic powerhouses.  

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