USD bulls are quickly exiting their long positions, dragging the USD index further lower as it broke below the recent swing lows at 102.
US data to undermine dollar
Durable Goods Orders for December, weekly Initial Jobless Claims, and December New Home Sales data from the United States will be watched for new inspiration during the early American session. Moreover, the US Bureau of Economic Analysis will announce its first Gross Domestic Product (GDP) growth forecast for the fourth quarter.
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Given the 3.2% expansion reported in the third quarter, the market anticipates a fourth-quarter yearly increase of 2.6%. As a result, there are now signals that the U.S. economy could be deteriorating significantly.
“We currently think that the U.S. dollar has entered a phase of cyclical devaluation versus most foreign currencies since the Fed is no longer driving interest rate rises, and US economic indicators are expected to weaken,” analysts at Wells Fargo said.
Hawkish Fed, but markets remain dovish
The mounting pessimism around the dollar has been worsened by escalating rumors of a possible Fed policy reversal. However, this position has been explicitly contradicted by the uninterrupted hawkish rhetoric from Fed speakers recently.
Next Tuesday, the Fed’s policy-setting committee will begin a two-day meeting, and investors have factored in a 25-basis-point (bps) interest rate rise, a reduction from the central bank’s 50-bps and 75-bps hikes from the previous year.
Meanwhile, according to a Reuters survey, in an October poll, the global economy will expand by 2.1% in 2023 and 2.8% in 2024, compared to 2.3% and 3.0%, respectively.
The survey indicates that global economic growth is expected to just surpass 2% this year, according to a Reuters poll of economists who said the more considerable risk was a further reduction to their outlook, in contrast to the general confidence in the markets since the beginning of the year.
Technically speaking, the US dollar index remains in a steep downtrend, falling below several supports without any problems. The next level to watch is near June’s lows at 101.30; if that level is taken out, it could drop toward the psychological level of 100.
Dollar index daily chart, source: author´s analysis, tradingview.com