US Dollar turns green after ECB cuts its policy rate by 25 basis points to 3%

by · FXStreet
  • The US Dollar turns stronger after European central Bank cuts its policy rate. 
  • Traders favor the Greenback again over the Euro after the ECB rate decision took place. 
  • The US Dollar Index (DXY) trades pops above 106.50 and heads higher

The US Dollar (USD) is turning green this Thursday after the European Central Bank (ECB) has cut its policy rate by 25 basis points in its last meeting for 2024. All eyes now will be on President Christine Lagarde as traders will want to see how the ECB sees the economic activity further develop after firm contractions in the Eurozone. Although a 25 basis points interest-rate cut was in line with expectations, doubts will rise if that is enough to kickstart the Eurozone economy again. 

In the US, the economic calendar is rather light. The weekly Jobless Claims will probably soak up the latter part of the attention, whereas the Producer Price Index (PPI) report is not expected to create much waves. The most inflationary elements were already analyzed on Wednesday with the Consumer Price Index (CPI) report, and traders quickly positioned themselves to lock in a rate cut from the Fed next week. According to the CME FedWatch Tool, the chances of such a decision are currently at almost 99%. 

Daily digest market movers: ECB drops the ball again

  • The European Central Bank (ECB) has cut its policy rate by 25 basis points to 3%. Questions are if that is enough to turn around the contraction that is taking place in nearly all local economies in the Eurozone.

  • At 13:30 GMT, all US data for this Thursday will be released:

    • Initial Jobless Claims for the week of December 6 will be released. Expectations are for claims to decline to 220,000 from 224,000 a week earlier.
    • As for the Producer Price Index (PPI) data for November, the monthly headline PPI should increase at a stable pace of 0.2%, while the yearly figure is expected to tick up to 2.6% from 2.4%. The monthly core PPI should increase by 0.2%, slowing from the 0.3% increase seen the previous month. The yearly figure is anticipated to tick up to 3.2% from 3.1%.
  • Equities are not applauding the rate cut move from the ECB. Both European equities and US futures are trading in red numbers ahead of the US Opening Bell. 
  • The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 98.6%, the highest probability seen yet after the US CPI release. 
  • The US 10-year benchmark rate trades at 4.29%, a fresh high for this week.

US Dollar Index Technical Analysis: Still within range

The US Dollar Index (DXY) is further defining a bandwidth that could hold until next year given the limited amount of data points left. The US Consumer Price Index (CPI)  release did not really move the needle, with the DXY staying between 105.50 and 107.00. 

The US Dollar bulls failed on Wednesday to close above 106.52 (April 16 high), a level that on previous occasions has also been  a hard barrier to get through.. Next up is the 107.00 round level and 107.35 (October 3, 2023, high). Further up,  the high of November 22 at 108.7 emerges. 

Looking down,  the pivotal level at 105.53 (April 11 high) comes into play before heading into the 104-region. Should the DXY fall all the way towards 104.00, the 200-day Simple Moving Average at 104.14 should catch any falling knife formation. 

US Dollar Index: Daily Chart

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day, according to data from the Bank of International Settlements. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

 

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