DXY: US dollar index falls again as pound rally gains steam

The dollar index (DXY) relentless sell-off accelerated today as traders reacted to positive news from the United States and abroad. The index is trading at $90.55, which is the lowest it has been since April 2018.

British pound a key contributor

The British pound is the biggest contributor to the dollar index weakness today. The currency, which has an 11% weighting in the index, is up by more than 1.4% today. This performance is mostly because of the positive signs that the UK and the EU will reach a Brexit deal by the end of the year.

A Brexit deal will be a good thing for the two sides because of the strong ties between the two sides. In fact, the two sides do annual trade worth more than £600 billion. As such, analysts believe that they will possibly reach an agreement by the end of the year.

The rising odds of a Brexit deal has also helped push other components of the dollar index. The euro, Swiss franc, and Swedish krona have also risen by more than 0.40%. That’s because these countries have a close interest to having a Brexit agreement.

Meanwhile, the dollar has also fallen by 0.20% against the Japanese yen. This is after the Bank of Japan released positive sentiment numbers. In its quarterly report, the BOJ said that sentiment in large and small companies improved in Q4. This happened as key pharmaceutical companies like Pfizer and Moderna announced progress of their vaccines.

US stimulus hopes alive

Another positive news pushing the dollar index lower is the likelihood of a new stimulus this week. According to media sources, a group of bipartisan senators will unveil a $908 billion stimulus package as soon as today.

The new bill will be split into two. One bill will allocate about $748 billion to small business loans, jobless benefits, and vaccine distribution. Another bill will allocate more than $160 billion to state and local governments that are currently struggling.

Later this week, the index will react to the Federal Reserve interest rate decision. Economists expect the bank to leave interest rate unchanged and press congress for more stimulus.

US dollar index technical outlook

On the weekly chart, we see that the dollar index has been on a freefall since March, when it reached a high of 103.0. The index has moved below the short-term and longer-term moving averages. It is also along the lower line of the Bollinger Bands, which, as you can find in our free forex trading course is usually a bearish sign.

Therefore, the path of least resistance for the DXY is lower, with the next target being $90.00 or lower. If it moves below $90, it will be the first time it has done that since March 2018.