USD index struggles as Fed rate cut expectations mount

The USD Index (DXY) is experiencing downward pressure, nearing the key 103.00 support level as market sentiment shifts in favor of possible interest rate cuts by the Federal Reserve by spring 2024. This bearish trend is highlighted by the index’s dip below the crucial 200-day Simple Moving Average (SMA), which is currently at 103.61, aligning with a decrease in US Treasury yields.

Investors are keenly awaiting further economic insights from the release of November’s Federal Open Market Committee (FOMC) Minutes, as well as data on Existing Home Sales and the Chicago Fed National Activity Index. While anticipations of a softer monetary policy stance in light of disinflationary trends and a cooling employment sector are imposing challenges, the dollar is finding some support from the persistent strength of the US economy and firm statements from certain Federal Reserve officials.

With a packed economic calendar this week, additional indicators including MBA Mortgage Applications, Durable Goods Orders, Initial Jobless Claims, Final Michigan Consumer Sentiment, and S&P Global Flash Manufacturing/Services PMIs will be closely monitored. Amidst these developments, there is ongoing speculation about whether the DXY will challenge the significant psychological threshold at 100.00.

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