The US Dollar has continued to weaken, after the Federal Open Market Committee (FOMC) set a target rate 25 basis points higher than before, despite reassuring economists that every decision will be driven by data, and continuously evaluated.
The Fed target inflation rate is set at 5-5.25%, even though the general consensus suggested that the Fed would not be increasing the rate, and instead would be making a cut. It is usually set at around 2%, marking a significant increase, rather than a cut, which signifies an attempt to help combat high inflation.
This confusion is mirrored in the statements released by the FOMC. For example, in March, they said that they anticipated “some additional policy firming may be appropriate”. By May, this sentiment had been changed to “the extent to which additional policy firming may be appropriate”.
As a consequence of this, the yields from the Treasury have dropped, which could signify trouble in the future for the US economy, and suggests anticipation of a potential recession.
Where does this leave the DXY?
If you aren’t familiar with the DXY, or are new to trading and investing, the DXY is calculated using the Euro, Japanese yen, British pound sterling, Canadian dollar, Swedish krona and Swiss franc – each carrying a weight to reflect international trade – in order to calculate an external bilateral trade-weighted average value of USD.
In layman’s terms, the dollar index measures the value of USD against six key international currencies.
Whereas the USD/CHF exchange rate hit 0.8800 – continuing its 15-month-long low – the overall DXY USD Index is facing the prospect of more months of an already 2-year dip.
With the DXY’s trend in mind, it looks as though there might be a long-term slump – especially as the DXY has continually laid below period daily simple moving averages (SMAs).
Monitoring the DXY in real time only furthers this insecurity. At the time of writing, the DXY was down over 3 percent in the last 6 months, over 2 percent in the last year, and almost 15 percent for all time.
That said, the last week saw an increase of almost 1 percent, a monthly increase of over 1 percent, and over 9 percent over the last 5 years. What this goes to show is that, if you are a trader or investor, it’s important to consistently keep track of the DXY chart using reputable sources, to see how the USD is performing compared to other countries.
How are other economies fairing in comparison?
Australian and New Zealand dollars had data showing strong demand, making both currencies firmer. This is especially the case with building permits in New Zealand and trade surplus in Australia, the latter of which recorded the second-highest figure in history.
Moving to Asia, the Chinese markets are open but the Japanese are closed. Despite WTI crude oil hitting a 17-month low, COMEX gold almost hit its highest value on record. This makes the markets at levels similar to when they were both last open.
However, in comparing USD specifically to other currencies, the biggest drop was against the CHF and JPY.