The value of the US Dollar decreases due to the reduction of a benchmark rate by China’s central bank.
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- US Dollar heads lower as China’s central bank cuts one of its benchmark rates.
The US Dollar (USD) is being sold again against most of its peers as most notable losses for the Greenback are against Korean Won – down 1% intraday – and UK’s Pound Sterling – down 0.60%. The weaker USD has been influenced by a surprise rate cut by China People’s Bank Of China (PBOC) cutting its 7-day Reverse Repo rate to 1.9% from 2% and committing to further stimulus for the much-battered construction sector. Additionally to the move, traders are reducing a bit of risk against the Greenback, maybe anticipating a lower-than-expected US Consumer Price Index (CPI) inflation print later in the trading session.
For that US CPI release, the market is expecting a drop on all fronts, with the most notable being the headline CPI YoY figure, which is set to drop from previous 4.9% to 4.1%, according to market consensus. Lowest estimate for that number is 4.0% while the highest estimate is for 4.3%. Expect to see a big move downward in the US Dollar Index should the actual number come out at 4.1% or lower. An inverse result of course should US CPI come out at 4.3% or higher, the US Dollar would rally higher in the likelihood that the Fed will need to do more rate hikes than projected at the moment.
The US Dollar is showing further signs of weakening as almost every currency in the Dollar Index (DXY) is gaining traction against the Greenback. That floor at 103 really comes close now and could see a firm break on the back of the US CPI numbers later this Tuesday.
On the upside, 105.44 (200-day SMA) still acts as a long-term price target to hit, as the next upside key level for the US Dollar Index is at 105.00 (psychological, static level), and acts as an intermediary element to cross the open space.
On the downside, 103.02 (100-day SMA) aligns as the first support level to confirm a change of trend. In the case that breaks down, watch how the DXY reacts at the 55-day SMA at 102.55 in order to assess any further downturn or upturn.
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