US Dollar Drops, Ukraine Tenses, and Fed Policy Concerns Continue
The US Dollar Moved Lower on Wednesday
Investors remain concerned about the potential for armed conflict in Ukraine and monetary policy tightening
Not only US Dollar but also Euro
The US dollar moved lower on Wednesday (26/01) morning in Asia and the euro was nearing its weakest level in a month against the safe-haven dollar and the Japanese yen. Investors remain concerned about the potential for armed conflict in Ukraine, and faster-than-expected US policy decisions, namely, monetary policy tightening.
The US Dollar Index, which measures the greenback against a basket of other currencies, edged down 0.01% to 95.920 by 1019 PM ET (3:19 AM GMT).
The USD/JPY pair edged up 0.02% at 113.89.
The AUD/USD pair edged up 0.14% to 0.7158 and the Australian market closed on a holiday. The NZD/USD pair edged down 0.06% to 0.6682.
USD/CNY fell 0.08% to 6.3227 and GBP/USD rose 0.12% to 1.3512. The UK is also working on an investigation into whether Prime Minister Boris Johnson could potentially breach the COVID-19 lockdown rules. The findings of the internal investigation could be announced today.
The euro reached $1.1303 after falling to $1.1264 overnight. The last time this happened was on Dec. 21, 2021. The single currency also edged down 0.06% to 128.64 per yen after hitting 128.25 during the previous session, also the first since 12 December 21.
Western leaders continued to accelerate preparations to counter any Russian military action in Ukraine, while Russia expressed “great concern” after 8,500 US troops we to be deployed to Europe as a precaution to a possible escalation.
The focus is also on the Fed, which will announce a policy decision later in the day. Investors will be looking for clues to the timing of rate hikes and quantitative tightening (QT), but money markets are currently pricing in the first hikes in early March 2022.
TD Securities analysts said, “Market sentiment remains fragile,” in a note.
From the Fed, “any hint around a starting point for QT or ‘faster’ and ‘faster’ rate hikes could move the market,” but “unfortunately, we don’t expect a definitive signal, and the outcome could be a mixed message.” ”
The Bank of Canada will also lower its policy decision later today, with the Canadian dollar inching up to CAD$1.2622 against its US counterpart.
“There is a significant amount of uncertainty surrounding the Bank of Canada’s January rate announcement, as policymakers seek to balance very strong employment and inflation-related realization data from Q4 against the rise in COVID infections and subsequent lockdowns in late December and January,” said TD Securities analysts.
The South African Reserve Bank will issue its policy decision on Thursday, while the Reserve Bank of Australia (RBA) will follow next week.
DXY US Index – Technical Analysis
$DXY is still trying to break the resistance at $96.320. US Index still manages its support area at 95.560. If $DXY closed bullish above 96.320, then DXY might go bullish to its ATH level.
WHAT ZFX THINKS…
Fed Decision Policy will give us a clear path on where DXY could go for the next week. If it is a hawkish sentiment for USD, then DXY goes up and commodities market continue going down.
For now, we’ll watch 96.300 resistance level area for US Index.
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