The US dollar index (DXY) is rising as forex investors react to the Federal Reserve interest rate decision, US GDP data, and the rising risks in US stocks. The index is also on track to have its first monthly gain since October last year.
Fed interest rate decision
The Federal Reserve concluded its meeting yesterday with a warning from Jerome Powell. In a closely-followed press conference, he said that the bank was committed to continuing supporting the economy through the pandemic. However, he said that the economy was highly uncertain as the number of coronavirus cases keeps rising.
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The bank left interest rates between 0% and 0.25% and said that they would remain at the current range until inflation rises to 2% and above. Economists at ING believe that consumer prices will reach 2% in early 2022. Also, the bank will continue buying assets at the pace of $120 billion per month.
The dollar index is also reacting to the first estimates of US Q4 GDP data. According to the Statistics Bureau, the economy expanded by 4% in the fourth quarter. This was lower than the 33.3% expansion in the third quarter.
This performance was due to a jump in consumer spending, which rose by 20% in the quarter. Also, companies increased their fixed assets investment while government spending helped.
Further data showed that more than 847,000 Americans filed for unemployment insurance last week. That was below the previous week’s increase of 914,000. In total, the continuing jobless claims fell from 4.9 million to 4.7 million.
Euphoria in the US stock market
The US dollar index is also because of the rising risks in the market. In the past few days, Reddit and Discord day traders have managed to push some of the most heavily shorted stocks to record highs. These traders are mostly in the r/WallStreetBets pages.
In the past five days, the stock price of GameStop has jumped by more than 945%, valuing the company at more than $24 billion. At the time of writing, the stock has jumped by 30% in premarket trading.
Similarly, AMC shares have jumped by more than 435% in the past five days while Bed, Bath, and Beyond shares have doubled. As a result, the closely-watched fear and greed index has fallen back to the fear zone.
Dollar index technical outlook
The daily chart below shows that the US dollar index bottomed at $89.70 early this year. Today, it is trading slightly below the important resistance level at $90.92. It remains below the 50-day and 25-day moving averages while the Relative Strength Index (RSI) has continued to rise. Therefore, a clear break above $90.92 will mean that bulls have prevailed. This will likely push the index above $92 in February.