The US Dollar Index (DXY) surged to a year-to-date high above 107.00 as the US Dollar strengthened for a fifth straight day, driven by what’s being called the “Trump trade rally.” This rally was fueled by Republican wins in both the House and Senate, ensuring significant Congressional support for President-elect Donald Trump’s policy agenda. The DXY hit these highs amidst market anticipation that Trump’s economic policies will promote growth, creating upward pressure on inflation and interest rates.
Market Reaction to Key Economic Data
- PPI and Jobless Claims Data:
- The Producer Price Index (PPI) for October showed inflation edging slightly higher, which could maintain pressure on the Federal Reserve regarding future rate decisions. The monthly headline PPI was in line at 0.2%, while yearly headline PPI accelerated to 2.4%.
- Initial Jobless Claims came in lower than expected, signaling resilience in the labor market.
- Federal Reserve (Fed) Speeches:
- Multiple Fed officials are scheduled to speak, with Chair Jerome Powell’s remarks drawing particular attention as they may clarify the Fed’s stance on interest rate cuts in December. Currently, there’s a high market expectation (82.5%) for a 25-basis point rate cut in December, although some bets have been reduced.
- Treasury Yields:
- The US 10-year yield softened slightly to 4.42% after reaching a year-to-date high of 4.48%, suggesting some investor caution despite the higher DXY.
Technical Analysis of the DXY
- Resistance Levels: The DXY’s current level at 107.00 represents key resistance, with a potential one-year high at 107.35.
- Support Levels: Immediate support is seen at 105.89, Tuesday’s closing level, with additional support at 105.53 (April 11 high), which should help limit any downside to 104.00 in the near term.
Summary
The DXY remains elevated due to robust economic data and expectations for policy continuity under a Trump administration. However, Fed rate decisions and upcoming economic data could introduce some volatility, and the DXY may find further upside limited near 107.35 unless new catalysts emerge.