US Dollar Faces Turbulence as ECB's Lagarde Takes Hawkish Stand Against Dovish Powell

The US Dollar (USD) continues its downward spiral following a sharp correction initiated during Fed Chairman Jerome Powell's speech on Wednesday. Despite Powell's reassurances on potential rate hikes, markets fixated on the dot plot projections, revealing a consensus for interest-rate cuts in 2024.

Contrary to the dovish stance of the Federal Reserve, several central banks worldwide have adopted a hawkish tone. The Swiss National Bank (SNB), the Bank of England (BoE), and surprisingly, the European Central Bank (ECB), all maintained their hawkish positions, diverging significantly from the Fed's projections of rate cuts in 2024.

During the ECB press conference, Christine Lagarde, the ECB President, stated that rate cuts were not discussed and are not on the table for 2024. This stark contrast has created a seismic shift in market dynamics.

Daily Digest: ECB Surprises with Hawkish Stance

Key US economic data released at 13:30 GMT added fuel to the fire:

• Import Price Index improved from -0.6% (October) to -0.4% (November).

• Export Price Index remained stable at -0.9%.

• Initial Jobless Claims decreased from 221,000 to 202,000, while Continuing Claims increased slightly from 1.856 million to 1.876 million.

• Retail Sales for November showed a significant uptick from -0.2% to 0.3%. Retail Sales excluding cars and transportation rose from 0% to 0.2%.

Multiple central banks made announcements:

• SNB maintained its rate at 1.75%.

• Norges Bank hiked rates by 25 basis points to 4.50%, triggering a 2.40% appreciation of the Norwegian Krone against the USD.

• BoE kept its benchmark rate at 5.25%, with a vote split of 6 in favor of hold and 3 for a 25 basis point hike.

• ECB retained its interest rate at 4%, and the Euro gained 0.80% against the USD after Lagarde's surprising comment on rate cuts not being foreseen for 2024.

However, the optimism stemming from the ECB's hawkish stance was short-lived as markets adjusted. US futures turned slightly positive after the opening bell.

The CME Group’s FedWatch Tool indicates a 79.3% chance that the Federal Reserve will maintain interest rates at its January 31 meeting, while 20.7% expect the first cut to take place.

US Dollar Index Technical Analysis: Navigating Uncertain Waters

The US Dollar Index (DXY) faced a considerable setback following the last Fed rate decision for 2023. With other central banks signaling rate cuts for 2024, the market is in flux. However, the US Dollar remains a strong yielder in the rate differential, suggesting potential investor inflow.

The DXY could witness a resurgence, targeting 103.00 as the first level to recover. The 200-day Simple Moving Average