The USD currency index maintained a prolonged bearish momentum ahead of a gloomy week due to a lack of US economic data and expectations of an interest rate cut by the Fed next year.
At 9.30 am, the US Dollar Index (DXY) which measures the value of the USD was at 98.152 points, down 0.09% since it opened in early trading on Tuesday in the Asian session.
The market is now focused on the US GDP announcement for the Third Quarter at 9.30 tonight (Tuesday), which is expected to record growth of around 3.8%, higher than the initial estimate of 3.2%.
In normal market liquidity, this data usually provides a clearer direction for market movements.
However, in a lower liquidity environment due to the holiday season, the data has the potential to trigger increased market volatility.
In addition, the path of interest rates remains the main driver of market movements. Currently, the market is pricing in a 79% probability that the Fed will keep interest rates unchanged in January, while the chance of a 25 basis point rate cut is close to 21%.
This rate expectation distribution is limiting the strengthening of the US dollar, as the market is in a ‘wait and reassess’ mode rather than a tendency to return to buying US dollars.
