The U.S. Dollar performed well so far in December as the U.S. economy is still resilient despite high interest rates. The U.S. Dollar has also been supported by other factors like major central bank rate cuts like the Bank of Canada and the ECB which increased flows in the U.S. Dollar. Additionally, economic challenges in China and political tensions in South Korea and France have caused safe haven flows to the U.S. Dollar. However, a Fed rate cut and inflation may alter the course for the currency.
Last week’s US CPI data met expectations, but a hotter-than-anticipated PPI raised concerns. Nonetheless, markets are confident in a 25bps rate cut at the Federal Reserve’s final meeting of the year on Wednesday. With this move almost fully priced in, the focus will be on the Fed’s future guidance.
Jerome Powell’s recent comments, highlighting reduced labour market risks but persistent inflation, have led to speculation of a hawkish cut. This shows that the Fed may signal a pause in rate cuts in January as it evaluates the outlook for inflation, which is still running above its 2% annual target, and the strength of the labor market.
President-elect Trump’s fiscal agenda next year could steer the Fed towards a more measured easing trajectory through 2025. Such policies would likely keep supporting the U.S. Dollar.
Powell’s comments at the press conference following the meeting and the revised economic forecasts will be closely examined by traders and investors, which could trigger high volatility in financial markets.
Technical Analysis
Source: TradingView
Price is still in a strong uptrend after it pulled back from its recent high at 108 and may have more opportunities to the upside. All 3 EMAs are below the price which may give the price a boost upwards.
If bullish momentum continues, price could continue its uptrend, with traders keeping a close eye on the 108.1 level as a potential resistance. If price couldn’t hold on to its gains, bears may look to drive the price down to 105.7, potentially reversing the trend.
