Dollar Index Falls to 3-Week Low Amid Weak U.S. Data and AI Concerns
The Dollar Index fell Thursday to near 101.50, its lowest level in three weeks, following weak data from the U.S. housing market and renewed concerns about artificial intelligence investments. At the same time, traders are increasingly betting that the Federal Reserve will keep interest rates unchanged at its next meeting.
Why Did the Dollar Index Fall Today?
The Dollar Index (DXY), which measures the value of the U.S. dollar against six major currencies, continues to weaken for the third consecutive day.
The decline followed economic data highlighting the fragility of the U.S. economy:
- Housing starts declined in September.
- Existing home sales fell to record lows.
ING Bank believes that investors are beginning to question the scenario of interest rates remaining high for a longer period, as market expectations for longer-term rates are being revised downward.
This coincided with a decline in U.S. Treasury yields.
AI Concerns Weigh on Markets
Concerns have grown regarding the sustainability of debt-financed investments in artificial intelligence infrastructure.
Analysts at Deutsche Bank noted a decline in U.S. stock futures, led by the tech-heavy Nasdaq, as earnings reports released after Wednesday’s close failed to dispel these concerns.
U.S. Federal Reserve Forecasts and Interest Rates
According to the CME Group’s FedWatch tool:
-Next week’s meeting: 84% probability of a rate hold.
-December meeting: 90% probability of a rate hike.
However, uncertainty remains, as Fed officials including Kevin Warsh last week have refrained from providing clear guidance on the timing or necessity of a rate hike.
Will the Dollar Find Support from Rising Oil Prices?
Despite current pressures, the U.S. dollar may find support if oil prices continue to rise, especially as concerns about inflation and the likelihood of interest rates remaining high for a longer period grow.
The rise in oil prices followed reports of a drone attack targeting Saudi Aramco’s Shaybah oil field, raising concerns about the security of energy supplies in the Middle East.
Ukrainian attacks on Russian oil infrastructure have also heightened concerns about global energy supplies. U.S.
Dollar Outlook for the Coming Period
The direction of the U.S. dollar in the coming period will depend on a range of factors, most notably U.S. economic data, developments in Treasury yields, the Federal Reserve’s stance on interest rates, as well as oil price movements and the persistence of concerns related to investments in artificial intelligence.
Pressure on the dollar may continue if economic data shows further weakness and bond yields decline, coinciding with lower long-term interest rate expectations.
Conversely, rising oil prices and persistent inflation concerns could limit the U.S. currency’s losses if they reinforce expectations that monetary policy will remain tight.
Accordingly, movements in the U.S. Dollar Index will remain tied to the balance of these factors, and it will be important to monitor U.S. economic data and statements by Federal Reserve officials to determine the currency’s likely direction in the coming period.
The Dollar Index from a Technical Perspective
The Dollar Index declined this week for the second consecutive week, after reaching the upper boundary of the ascending price channel under the influence of a bearish divergence on the weekly MACD indicator.
We continue to expect further declines in the Dollar Index, and any corrective rally is likely to present a selling opportunity in the coming period, as we mentioned in our weekly analysis video here.
