DXY: US dollar index spikes as Fed warns about risks to the US economy

The US dollar index (DXY) rose in overnight trading as the market reacted to the Federal Open Market Committee (FOMC) minutes. The index is now trading at $92.95, which is its highest level since Tuesday this week. It is also higher than yesterday’s low of $92.15.

US dollar has been under pressure

The dollar index has been under pressure in recent months. It has moved from a multi-year high of $102 to a low of $92.15, which is its lowest level in more than two years.

There are several reasons behind the dollar weakness. First, the number of coronavirus cases in the US has been rising. The total number of infections has risen to more than 1.7 million while the number of deaths has crossed 170,000. That is significantly higher than what most countries have recorded.

Second, congressional Democrats and Republicans have disagreed on the next phase of stimulus package. On the one hand, Democrats have proposed a more than $3 trillion package while Republicans have a $1 trillion package. Therefore, without a stimulus package, analysts say that the US economy will be at risk.

Third, the recent actions by the Fed have also contributed to the weaker US dollar. The Fed has brought interest rates to zero and printed trillions of dollars. All this has devalued the greenback. Finally, the dollar index has declined because of the fears of the upcoming election.

Fed calls for more stimulus

The Federal Reserve released the minutes of its last meeting yesterday. The minutes showed that the members had expressed concern about the future of the US economy as the number of coronavirus cases continued to rise.

They admitted that recent numbers from the US were relatively strong. These included the recent employment, industrial production, manufacturing production, housing starts, and retail sales. However, they worried that the rising number of cases put that growth at risk. As such, they decided to leave interest rates unchangeduntil they are confident that the economy had weathered recent events.

Even as the members called for more stimulus from congress, they expressed concern about the rising public debt. The debt held by the federal government has increased by $3 trillion to $26 trillion.

In the meeting, the members also talked about yield curve control, a program being implemented in Australia and Japan. They noted that such a policy would have only modest benefits in the current environment.

US dollar index technical outlook

The four-hour chart shows that the US dollar index rose sharply in overnight trading. It is now trading along the 50-day exponential moving average and slightly below the 100-day EMA. The price is also slightly below the descending trend line that is shown in black. Also, it has formed a three white soldiers pattern while the RSI has jumped. Therefore, the index is likely to rise today as bulls attempt to move to $93.00.