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U.S. Dollar Declines and Dow Jones Rises on Slower Rate Hike Signals

Published 11/25/2022, 05:35 AM
Updated 05/25/2022, 07:45 AM

Yesterday’s volatility level was lower due to the Thanksgiving bank holiday and may also be reduced today for some assets. The main news in the market continues to be China’s “Zero COVID-19” policy. So far, the government has not placed any cities in lockdowns as we have seen in the past. This is positive oil prices and global supply chains. Mass testing and isolation have already significantly lowered demand and economic activity.

The US Dollar continues to decline for a fourth consecutive day but has shown signs in the past 24 hours of finding resistance. US investors have mainly been focused on the signals from the Federal Open Market Committee this week regarding a reduced rate hike for December. No news or data is scheduled for today or Monday related to the US Dollar. This morning, the US Dollar Index remains below the 106.00 psychological level.

The Euro

This morning, the EUR/USD pair has gained across its main competitors after struggling over the past few days. Investors mainly focus on the stalled negotiations between member states on Russian price caps. The price cap is aimed at imports of crude oil and natural gas coming from Russia. In addition, investors have also priced in the expected rate hikes for the coming months after indications from the European Central Bank.EUR/GBP price chart.

Members of the European Union officially could not agree on the price at which imports should be capped. Some countries, such as France, pushed for a lower price cap, while others, such as Greece and Germany, would not accept a significantly lower price, which would harm regional economic growth. The higher the price cap, the better for the European economy, and it potentially may support the Euro, which has been pressured for months by the current energy crisis.

Additionally, the price of the Euro has been influenced by opposing factors regarding the economy and its performance. The IFO representatives advised markets that the Eurozone economy may see a weaker recession than previously expected, as companies seem to be overcoming issues related to the energy crisis and supply chain problems. The Financial Stability Review advised that the economy will likely slow significantly if the inflation level does not decline.

Dow Jones

The Dow Jones Industrial Average has been the best-performing US index over November. The price has increased by over 5% throughout the month and has formed a full price correction against the decline seen in August–September 2022. Whereas the Nasdaq 100 and S&P 500 remain significantly lower. The only concern for the market’s bulls is the resistance level from August and April.

DJIA daily chart.

The price of the Dow Jones has been able to take full advantage of the declining value of the US Dollar and also has fully priced in a reduced rate hike. Lower rate hikes are known to increase demand for stocks as it results in a higher risk appetite and consumer demand. Market participants expect a 50 basis point rate hike in December instead of another 75 basis points.

Economists advise the CPI figure would need to be above 0.6% for the FOMC to consider another 75 basis points. The US stock market has also been supported by the decline in bond yields, making them a less attractive investment option. The best-performing stocks within the Dow Jones during yesterday’s market were Walt Disney Company (NYSE:DIS) (+2.78%), Salesforce (NYSE:CRM) (+2%) and Boeing (NYSE:BA) (+1.36%).

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