US Dollar strengthens as ECB President Lagarde signals potential rate cuts

• The DXY gained toward 106.70 on Thursday.
• US Dollar Index rises after Christine Lagarde confirmed the ECB’s dovish stance.
• PPI figures from the US came in hot, benefiting the USD.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, rose toward 106.70 after Christine Lagarde, President of the European Central Bank (ECB), confirmed talks of a possible 50 bps interest rate cut. Lagarde’s comments followed the ECB cutting its benchmark rate by 25 bps, the fourth time it has lowered rates this year.

Traders favored the Greenback over the Euro following the ECB rate decision, causing the DXY to surge above 106.50.

In addition, US Producer Price Index (PPI) data showed inflation jetting above expectations, which may slow the Federal Reserve’s (Fed) turn toward loose monetary policy next year.

Daily digest market movers: ECB cut and higher US inflation push US Dollar higher

• The PPI increased by 3% YoY in November, surpassing market expectations of a 2.6% gain.
• The core PPI, excluding food and energy, climbed by 3.4% YoY, exceeding analysts' forecast of 3.2%.
• On a monthly basis, headline PPI rose by 0.4% while consensus was 0.2%.
• Initial Jobless Claims surged to 242,000 in the week ending December 7th, surpassing estimates of 220,000.
• Despite the hot producer inflation data, markets weighed the surge in joblessness and still priced in a 25 bps cut for next week’s Fed decision.

DXY technical outlook: Reclaiming 20-day moving average indicates resilience

The US Dollar Index has halted its recent decline and regained some of its lost ground on Thursday. The DXY index has managed to stay above the 106.00 level despite mixed sentiment data and speculation about the Fed slowing down its rate hiking cycle. 

The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators also suggest that the index is resilient and could continue to move higher.

The DXY faces resistance at 106.50 -107.00. If it recovers this area, it might retest the 108.00 area.