US Dollar Drifts Lower as Rate Cut Bets Intensify Amidst Global Headlines

The US Dollar (USD) experienced a muted trading session on Wednesday, as US markets observed the Juneteenth holiday. However, the Greenback remains under pressure following Tuesday’s disappointing retail sales data, which reinforced expectations of potential Fed rate cuts later this year.

Global Headlines and Market Sentiment

While US markets were closed, several global headlines garnered attention:

  • Japan: Opposition parties called for snap elections, raising political uncertainty.
  • US-Taiwan: A US arms deal with Taiwan sparked tension with China.
  • Europe: Several European countries, including France and Italy, are facing potential reprimands and fines for exceeding EU deficit limits.

These developments, coupled with the weaker-than-expected US economic data, have contributed to a cautious market sentiment and increased speculation about the Fed’s future policy decisions.

Fed Rate Cut Expectations on the Rise

The CME FedWatch Tool currently indicates a 60% probability of a 25-basis-point rate cut in September, up from previous estimates. This growing expectation of rate cuts is putting downward pressure on the US Dollar.

Technical Analysis: DXY Faces Downside Risks

The US Dollar Index (DXY) is attempting to hold its ground but faces increasing downside risks. While the index is currently supported by a cluster of key moving averages around 105.00, a break below this level could trigger further declines towards 104.00.

On the upside, resistance levels to watch include 105.52, 105.88, and the year-to-date high of 106.51. However, the recent weakening of US economic data and growing expectations of rate cuts could limit the DXY’s upward potential.