The US Dollar Index was initially boosted by positive news of the 10-year bond yield rising to 5% on the first trading day of November, pushing it back above the 107 level. However, the rally proved short-lived as the index quickly reversed its course and experienced a sharp downturn. As of November 22nd, it had even dropped to the edge of 103.

The United States released its latest non-farm payroll and inflation data for November. The non-farm payrolls for October only added 150,000 jobs, the lowest since January 2021. The figures for August and September were also downwardly revised, resulting in a decrease of approximately 100,000 jobs overall. The unemployment rate rose to 3.9%, and monthly wage growth slowed to 0.2%. Additionally, the consumer price index and core inflation index, released mid-month, showed a decline in year-on-year growth rates to 3.2% and 4% respectively. These data indicate a slowdown in job market momentum and inflationary pressure, allowing the Federal Reserve to maintain interest rates unchanged for a longer period to observe market performance. As a result, investors increasingly believe that the rate-hiking cycle has ended, and future monetary policy actions may involve rate cuts.

The expectation of significant changes in the market immediately led to a continuous decline in the US 10-year Treasury bond yield, dropping below 4.4% at one point. The US Dollar Index was also under pressure and consecutively fell below the 100-day and 200-day moving averages, finding some stability around 103. On the other hand, the US stock market performed significantly well, with the Dow Jones Industrial Average rising nearly 10%.

Based on the current situation, unless inflation suddenly reverses and rises significantly, the Federal Reserve's federal funds rate in the United States will stabilize. Although the Fed's attitude is still cautious, refraining from declaring the end of the rate-hiking cycle, they have become more open compared to before. The duration of maintaining rates at the current level will depend on economic and inflation performance. Furthermore, the Fed maintains a positive outlook on the economic outlook, with the mainstream market opinion believing that rate cuts will begin in the second half of next year. However, some major banks have higher expectations of an economic recession in the United States and even estimate that the US may start cutting rates as early as the end of the first quarter, with a total rate cut of 2.75% for the year. The author tends to believe that the chances of a recession occurring in the US are low, and even if there is a recession, it would be mild. As next year is a presidential election year, the Biden administration will strive to maintain a favorable market environment, and if conditions permit, the Federal Reserve will cooperate accordingly. If inflation continues to decline, it is not ruled out that the Fed may consider rate cuts earlier.

Currently, the decline in the US dollar is mainly driven by weakening technical trends and position adjustments, rather than sustained bearish sentiment based on fundamentals and monetary policy. The economic performance speaks for itself, with the Eurozone and the United Kingdom already on the brink of recession, and the Eurozone having a higher demand for rate cuts compared to the US. Therefore, there may be an opportunity for a rebound in the US Dollar Index around 102.50/103.00, with resistance levels at 104.50/105.00. It may be worth considering range trading within this range of more than 200 points.

Patrick Law

Chief Operating Officer of Hantec Group