The U.S. Dollar Index hit its lowest point of 2024 last week after dovish comments from the Federal Reserve Chairman Jerome Powell led global currency markets to expect a more cautious Fed stance than previously thought.
This led to continued selling pressure, causing the U.S. dollar to fall to make fresh new lows today!
As August draws to a close, the dollar index has fallen by 3.3% so far this month, marking its largest monthly decline since November 2022.
Will the U.S. dollar continue its recent decline, or could certain factors stop the drop and even turn things around?
The short-term outlook for the US dollar depends on a couple of key factors.
First, the unwinding of the Japanese yen carry trade could put some pressure on the dollar. Second, the strength of the U.S. job market is crucial.
Robust employment figures will reduce the number of expected Federal Reserve rate cuts this year, further bolstering the dollar’s position.
The dollar’s value is also often affected by perceptions of China’s economy. When market participants are pessimistic about China’s economic performance, the dollar tends to strengthen.
But if China’s economy shows signs of improvement, the dollar may weaken.
When China’s economy improves, global investors tend to become more optimistic about growth prospects. This increased risk appetite often leads to a shift away from safe-haven assets like the U.S. dollar, causing it to weaken.
This scenario aligns with the Dollar Smile Theory, where increased global economic optimism often corresponds to the bottom of the “smile”‘ – a period when the U.S. dollar tends to be weaker as investors seek opportunities in growing economies like China.
Overall, the direction of the dollar in the coming months will depend on a mix of domestic job data and global views on China’s economy.
Currency Market Movers
Let’s review the price action in forex today.
Which currency pairs gained the most today?
NZD/USD was the leader of the pack, gaining 0.77% or 41 pips.
As shown by our FX Market Movers page, GBP/USD and NZD/CAD won the silver and bronze medals today.
Looking at the NZD/USD Trend Following Rating, it’s showing a Bullish rating.
The currency pair has managed to climb back above ALL of its major moving averages, which now act as dynamic support areas.
But the NZD/USD Overbought/Oversold Rating is showing “Overbought“.
Which currency pairs lost the most today?
USD/CHF was the biggest loser, falling 0.67% or 56 pips.
Looking at the USD/CHF Pivot Points, the price below ALL pivot point support levels!
Currency Strength
What was the overall strength or weakness of individual major currencies today?
Based on the Currency Strength Meter on MarketMilk™, NZD was, by far, the strongest currency, while USD was the weakest currency.
If we dive a little deeper and look at just how major currency pairs moved over the past 24 hours, we can see just how USD/CHF started falling during the European session.
Currency Short-Term Trends
When it comes to short-term trend strength, NZD shows the most bullish strength.
The USD shows the most bearish strength.
Currency Trend Momentum
Trend momentum refers to the likelihood of the price continuing to move in its current direction. USD is currently showing very bearish momentum.
Currency Heat Map
If we take a look at our currency heat map, we can see the weakness of USD across timeframes.
Currency Volatility
Which currency was the most volatile today?
Based on our Currency Volatility Meter, it’s the JPY.
Check out the increase in volatility today for major currencies. Notice just how volatile JPY has been over the past 24 hours.
Which currency PAIR was the most volatile today?
Given that JPY was the most volatile currency, which pair?
NZD/USD was the most volatile, moving 0.99% or 60 pips.
