Dollar Decline on Fed Rate Cut

• The Fed and the BoE both cut interest rates yesterday and weighed on the dollar and Pound Sterling, respectively.

• The Nasdaq remains robust and reached an all-time high yesterday, followed by the Feds announced rate reduction yesterday.

• Gold rebounded from its monthly low level after plummeting in the previous session.

Market Summary

The market's focus was on the Fed's interest rate decision, which saw the U.S. central bank reduce rates by 25 basis points, in line with market expectations. This rate cut weighed on the dollar, causing the Dollar Index to decline to a critical level near 104.30. Similarly, the BoE also implemented its first rate cut in the post-pandemic era, signalling the end of the UK's monetary tightening cycle. However, this widely anticipated move did not create significant turbulence for the Pound Sterling.

In reaction to the Fed's easing stance, Wall Street, particularly the Nasdaq, was boosted, with most major tech stocks closing higher. In the commodities space, gold benefited from the softened dollar, rising by nearly 2% in the previous session. Oil prices, which have remained bullish since the beginning of the month, were further supported by the easing monetary policies from central banks, reaching monthly highs.

Current rate hike bets on 18th December Fed interest rate decision:

Source: CME Fedwatch Tool

0 bps (32.2%) VS -25 bps (67.8%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index took a hit following the Fed's decision to implement a 25 bps rate cut yesterday, dropping to a critical level near the 104.30 mark. A break below this threshold could signal a potential shift in the index's direction. Fundamentally, Fed Chair Jerome Powell's dovish remarks indicated that the U.S. central bank remains committed to rate cuts aimed at sustaining economic growth and supporting a robust job market. This policy stance may contribute to a continued easing in dollar strength in the near term.

The Dollar Index retraced from its recent peak at close to the 105.50 mark; should the index fail to defend above the 104.30 mark, it may be seen as a bearish signal for the index. The RSI has declined to the 50 level while the MACD has a deadly cross at the top, suggesting a shift from the bullish momentum for the index.

Resistance level: 104.60, 105.17

Support level: 103.80, 103.05

XAU/USD, H4

Gold prices staged a technical rebound after experiencing a sharp decline in the previous session, supported by a softer dollar. The precious metal climbed to a critical resistance level around the $2,700 mark, where it is likely to encounter strong selling pressure. However, a sustained break above this level could signal a potential bullish reversal for gold, opening the door for further gains.

Gold prices rebounded from their support level near the 2660 mark. However, the bullish momentum is still lacking with the gold. The RSI remained below the 50 level while the MACD had crossed at the bottom, giving a neutral signal for the gold.

Resistance level: 2705.00, 2737.70

Support level: 2660.00, 2607.00

GBP/USD，H4

The GBP/USD pair remains below the key 1.3000 level, weighed down by the Bank of England‘s recent monetary policy shift. The BoE’s 25-basis-point rate cut, while widely anticipated, had a limited immediate impact on the Pound. However, the central bank‘s dovish pivot could gradually contribute to a softening in Pound Sterling’s strength in the near term as market sentiment adjusts to this policy stance.

GBP/USD did not reach its previous high from its technical rebound yesterday, suggesting a bearish bias for the pair. The RSI is hovering close to the 50 level while the MACD is flowing in between the zero line, giving the pair a neutral signal.

Resistance level: 1.3040. 1.3130

Support level: 1.2940, 1.2815