US Dollar flattens as Powell smashes hopes of quick interest-rate cuts

■The US Dollar trades flat, looking for direction after the Federal Reserve decision. 

■Powell kept his cards close to his chest, not committing to any path for interest rates. 

■The US Dollar index trades in the middle of a 30-day range between 104.00 and 105.50.

The US Dollar (USD) trades overall in the green against most peers on Thursday, posting only slight gains, making the US Dollar Index (DXY) trade in a very narrow range. The devaluation of the Greenback seen on Wednesday after the disinflationary Consumer Price Index (CPI) numbers got partially erased by the US Federal Reserve (Fed) rate decision and its dot plot. Federal Open Market Committee (FOMC) members only see reason for one rate cut in 2024, and four in 2025, while markets were expecting two rate cuts for this year. 

Fed Chairman Powell left markets rather clueless as he didn’t commit to any path for interest rates.. This means markets are likely to respond to upcoming data, and with the Producer Price Index (PPI) numbers on the docket, together with the weekly Jobless Claims, any soft number will be enough to trigger US Dollar easing. Similarly, upbeat economic data points will move the needle in favour of a stronger Greenback, making it a bumpy ride until that possible first interest-rate cut in September. 

Daily digest market movers: Focus returns to data

At 12:30 GMT, the weekly Jobless Claims and the Producer Price Index numbers will be released:

Monthly headline PPI is seen advancing by a marginal 0.1%, easing from the 0.5% increase seen in April. On year, headline PPI is seen rising to 2.5% from 2.2% .

Monthly core PPI should ease as well to 0.3% from 0.5%. Yearly core PPI should remain stable at 2.4%.

Initial claims are expected to subside a little to 225,000 from 229,000.

Continuing Jobless Claims should pick up to 1.800 million from 1.792 million. 

Weekly jobless claims for the last week of May:

May’s Producer Price Index numbers:

Federal Reserve Bank of New York President John Williams will be the first Fed speaker to come out of the blackout period that takes place during a Fed rate decision. Williams will participate in a moderated discussion at around 16:00 GMT with US Treasury Secretary Janet Yellen at the Economic Club of New York.

Equities do not like to be left behind clueless by the Fed, with both Asian and European indexes trading in the red. US futures are up though, with a small exception for the Dow Jones Industrial Index. 

The CME FedWatch Tool shows a 38.5% chance of Fed interest rate at the current level in September. Odds for a 25-basis-points rate cut stand at 56.7%, while a very slim 4.8% chance is priced in for a 50-basis-points rate cut.

US Dollar Index Technical Analysis: Nobody knows

The US Dollar Index (DXY) faces the consequences of an eventful Wednesday that brought a disinflationary inflation report and a Fed rate decision that clouded the outlook. With the Fed not committing to any plan ahead, any softer data point this summer will contribute to a further easing for the Greenback. In case US data keeps easing, a weaker USD can be expected in the next few months. 

On the upside, no big changes to the levels traders need to watch out for. The first is 105.52, a level that held during most of April. The next level to watch is 105.88, which triggered a rejection at the start of May and will likely play its role as resistance again. Further up, the biggest challenge remains at 106.51, the year-to-date high from April 16. 

On the downside, the trifecta of Simple Moving Averages (SMA) is still playing support. First, and very close, is the 55-day SMA at 105.07. A touch lower, near 104.48, both the 100-day and the 200-day SMA are forming a double layer of protection to support any declines. Should this area be broken, look for 104.00 to salvage the situation.