- The US dollar exchange rate, as represented by the dollar index, is on the defensive, courtesy of increased risk appetite.
- Powell’s less-than-hawkish talk is also hurting the greenback.
The dollar index (DXY), which tracks the value of the greenback against the basket of the currencies, fell below the 50-day moving average (MA) yesterday and hit a three-week low of 94.69.
At press time, the DXY is trading at 94.74 – down 2.31 percent from the recent high of 96.98.
The US President Trump’s trade deal with Mexico put a bid under the risk assets in the NY session. The US stock markets hit new record highs and the US dollar – the new safe haven – took a beating.
The greenback was already on the defensive on the reduced prospects for faster Fed tightening. Fed chair Jerome Powell on Friday defended the gradual rate hike path and downplayed the chances of economic overheating. Powell’s comments informed markets that the central bank has little reason to push rates above the neutral level.
Looking forward, the greenback will likely remain on the back foot if the risk assets continue to cheer Trump’s conciliatory approach. The US trade balance and consumer confidence number, scheduled for release today, could also influence the greenback.
Dollar Index Technical Levels
Support: 94.16 (July 31 low), 93.87 (50-day MA), 93.71 (July 9 low)
Resistance: 94.78 (session high), 95.01 (50-day MA), 95.07 (5-day MA)
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