The US dollar softened overnight after dovish comments from Fed official Christopher Waller suggested potential for earlier and deeper rate cuts. Waller's remarks, coupled with better-than-expected Chinese economic data, influenced currency markets. However, uncertainty surrounding upcoming tariff announcements by President-elect Trump adds a layer of caution.
The US Dollar (USD) experienced a slight decline overnight, buoyed by dovish remarks from Federal Reserve (Fed) official, Christopher Waller . Waller indicated that the Fed might implement further interest rate cuts this year, potentially sooner than anticipated by market participants, contingent upon future inflation data aligning with the December Consumer Price Index (CPI) report.
As of the latest market observations, the DXY index, a gauge of the USD's strength against a basket of major currencies, was trading at around 109.01 levels, according to OCBC's FX analysts Frances Cheung and Christopher Wong. Waller further emphasized the possibility of additional rate reductions in the first half of 2025 if economic conditions remain favorable. The projected timing for the next rate cut has shifted earlier to June, compared to the previous expectation of October. Market expectations regarding the magnitude of the rate cut have also surged back to 42 basis points (bps). This morning's economic data release revealed that China's growth and activity indicators exceeded market forecasts. This positive development contributed to sustained support for Asian currencies. However, as the weekend approaches and the inauguration of President-elect Trump on January 20th draws near, markets may exhibit a degree of caution regarding their positions (with the USD dip potentially remaining shallow). Concerns stem from the prospect of imminent tariff announcements.On the Truth social platform, President-elect Trump recently stated his intention to establish an external revenue service responsible for collecting tariffs, duties, and all revenues derived from foreign sources. Nevertheless, uncertainty persists regarding the timing, scope, and scale of potential tariffs. Daily momentum has taken on a mild bearish slant, while the Relative Strength Index (RSI) has eased. A bearish divergence has been observed on the RSI, suggesting a potential pullback. Support levels are anticipated at 108.70 (21-day moving average) and 107.33 (50-day moving average). Resistance levels are projected at 110.10 and 110.90. Today's economic calendar features releases of housing starts, building permits, and industrial production (IP) data
Economics Markets US Dollar Federal Reserve Interest Rate Cuts Christopher Waller China Economic Data Asian FX Trump Tariffs DXY Index Relative Strength Index (RSI) Bearish Divergence
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