US Dollar (DXY) Shrugs Off the Fed, Focus Now Turns to NFPs

US Dollar (DXY) Price and Chart Analysis

• The Fed and the market continue to disagree on US interest rates going forward.
• Friday’s NFP report takes on renewed importance.

The US dollar has barely moved post-FOMC minutes despite the US central bank reiterating that they believe US interest rates will stay higher for longer. The minutes of the December meeting showed that CPI remained elevated but had softened in recent months, while labor market conditions ‘eased somewhat over October and November but remained quite tight’. The task of keeping rates higher enough for long enough to bring inflation back to target while steering the economy towards a soft landing is not being helped by a robust labor market where higher wages are commonly needed to attract new workers. Wednesday’s JOLTs data showed job openings steady at around 10.5 million in November, while job quits nudged higher to 4.173m vs 4.047m in the prior month. The monthly US jobs report (NFP) now takes on additional importance with the job market under increased scrutiny by the US central bank.

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Short-dated US Treasury yields remained rangebound post-FOMC minutes despite the divergence between the market and the Fed over the future level of US interest rates. The Fed believes the economy needs a higher terminal rate than currently seen in the futures market, while the market also disagrees with the US central bank and sees a cut in rates at the end of the year. This difference of opinion will keep US Treasury traders busy in the coming months.

US 2-Year Treasury Yield Daily Chart – January 5, 2023

The US dollar remains in the middle of a 103.40 to 105.10 multi-week range going into Friday’s jobs report. The daily chart shows the DXY struggling against the short-dated 20-day moving average, while a bearish death cross – 50-/200-day switchover – is set to be formed this week. Friday’s NFP release will need to show a marked difference to market expectations of 200k new openings if this recent range is to be broken.

Death Cross: What is it and How to Identify it When Trading

US Dollar (DXY) Daily Chart – January 5, 2023

Charts via TradingView

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