Weekly forex insights: US Dollar Index hit a new 2024 low

The foreign exchange market has faced persistent selling pressure, driven by investor expectations of additional easing from the U.S. Federal Reserve in the coming months. The prospect of a soft economic landing, coupled with potential rate cuts, has fueled risk appetite, creating obstacles for the U.S. Dollar’s recovery.

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The foreign exchange market has been under consistent selling pressure as investors anticipate further easing by the U.S. Federal Reserve this year and the next. Expectations of a soft economic landing, combined with the potential for future rate cuts, have led to increased risk appetite, posing challenges for the U.S. Dollar’s recovery. Consequently, the U.S. Dollar Index hit a new 2024 low, hovering just above 100.00.

Looking ahead, several key economic indicators will be crucial in shaping the market outlook. The Chicago PMI and Dallas Fed Manufacturing Index are expected soon, followed by a range of PMI reports, job openings data, and construction spending figures. Mid-week data such as ADP Employment Change numbers and crude oil supply reports will further influence market sentiment. The week culminates with the much-anticipated Nonfarm Payrolls and Unemployment Rate reports, which are vital for assessing U.S. labor market health and future Federal Reserve actions.

The EUR/USD pair has been a standout performer, reaching new 2024 highs above 1.1200, largely supported by favorable Eurozone economic data. Inflation figures and PMI reports from Germany and the broader Eurozone will be closely monitored to gauge the pair’s future direction. The British Pound and Japanese Yen are also seeing notable movements against the Dollar, reflecting shifting global currency dynamics. As these trends unfold, market participants are likely to adjust strategies in response to the evolving currency landscape.

Meanwhile, the Indian Rupee’s recent recovery momentum has started to fade. After starting the week at 83.47 and briefly touching a two-month high of 83.43, the USD/INR pair rose steadily, closing at 83.70. The rupee’s initial gains were driven by the U.S. Federal Reserve’s 50 basis point rate cut and expectations of further reductions, which weakened the Dollar Index and bolstered major Asian currencies. However, month-end dollar demand from importers caused the rupee to weaken by week’s end.

On the domestic front, Foreign Portfolio Investors (FPIs) continued to pour into Indian equities, propelling the Sensex to a record high of 85,000, and Nifty to an all-time peak. India’s forex reserves also hit a new record of $692.3 billion. With the Dollar Index starting to rebound, further downside in the USD/INR pair below 83.50 appears limited.