Dollar Loses Shine Amid Dovish Bets, Eyes Lower Rates in 2024

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The US Dollar (USD) is struggling to hold its ground above 102.40 today, feeling the heat of dovish bets in the market following the release of December’s economic data. The December Nonfarm Payrolls report came in strong, but a softer-than-expected ISM Services PMI and the Fed’s dovish stance are dragging the greenback down.

Fed Easing Bets Drive Dollar Weaknesss:

Minutes from the recent Federal Reserve meeting revealed a more dovish than anticipated outlook. The Fed expressed comfort with slowing inflation and projected no rate hikes until 2024, even suggesting potential easing of up to 75 basis points.

Markets are now buzzing with bets of rate cuts as early as March, with May potentially seeing another reduction. This dovish tilt weakens the Dollar’s appeal, as lower interest rates make investments in higher-yielding markets more attractive.

Economic Data Paints a Mixed Picture:

Strong labor market data, with Nonfarm Payrolls exceeding expectations and unemployment holding steady at 3.7%, initially supported the Dollar.
However, the weaker-than-expected ISM Services PMI, a gauge of US business activity, dampened optimism and reinforced the dovish bets.

Technical Indicators Hint at Downward Trend:

Technical indicators on the daily chart point towards a bearish outlook for the Dollar. The RSI is falling in negative territory, suggesting bearish momentum dominating the market.

The MACD is showing rising red bars, further implying escalating downside pressure.

The index is struggling below its 20-day, 100-day, and 200-day SMAs, indicating broader dominance of sellers.

Outlook:

With technical indicators aligning with the dovish market sentiment, the Dollar is likely to face further headwinds in the short term. Support levels to watch include 102.15, 101.80, and 101.70. A push below these could open the door for further declines.

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