The US Dollar Index (DXY) saw a slight decline following a 25 basis point rate cut by the Federal Reserve. Fed officials observed that the economy remains robust, although there has been a softening in the labor market. The decision to cut rates was unanimously approved. The DXY, which tracks the USD against a basket of six major currencies, edged lower after the rate cut. Despite uncertainty in the economic outlook, the Fed remains optimistic about continued economic growth. The central bank also expressed confidence in meeting its long-term inflation target of 2%, despite the rate reduction.

Earlier this week, the US Dollar Index had surged following Trump's election, driven by anticipated inflationary policies and strong reports from the services sector. Subsequent profit-taking contributed to the dollar's pullback after its significant rise.

Market Daily Brief: US Dollar weakens slightly post-Fed rate cut. Following the Federal Reserve’s 25 basis point cut, the US Dollar Index (DXY) dropped slightly, currently hovering around 104.50. The Fed adjusted the Federal Funds Target Range to 4.50%-4.75%, aligning with market expectations. This decrease is smaller compared to the 50 basis point cut at the September 18 meeting. Economic indicators continue to signal robust expansion, although the future remains clouded with balanced risks. The Fed’s statement recognized strides towards the 2% inflation goal, albeit noting that inflation is still somewhat high. The rate reduction decision received unanimous support, including from Governor Michelle Bowman and all other policymakers. The statement underlined the Fed's ongoing commitment to its dual mandate of ensuring price stability and maximizing employment. The Fed noted an easing in labor market conditions but affirmed that the economy is still growing solidly. Chair Powell, in the press conference, remarked that economic policy is moving towards a more neutral stance, maintaining steady progress on inflation and stable labor market conditions. He emphasized caution in balancing growth with inflation, adjusting rates as necessary based on economic signals and resilience.

Technical Outlook for DXY: Despite a recent dip, technical indicators for the DXY initially retreated but quickly rebounded strongly on Wednesday, staying in positive territory. The Relative Strength Index (RSI) crossed above 50, indicating a resurgence in bullish momentum. However, the Moving Average Convergence Divergence (MACD) remains below zero, suggesting some selling pressure.

The DXY has regained support at its 200-day Simple Moving Average (SMA), pointing to a possible reversal of its recent downtrend. Moreover, the index is nearing a bullish crossover between the 200-day and 20-day SMAs, often a precursor to a change in trend that could propel the DXY higher. A completed crossover would strongly confirm a bullish reversal, potentially driving the index upwards.