**US Dollar Reverses Post-Fed Rally: Focus Shifts to AUD/USD, GBP/AUD Ahead of Australia Jobs and UK CPI Data**
*Based on work by Fiona Cincotta at City Index*
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### US Dollar’s Reversal After Fed Meeting
The US dollar witnessed a notable reversal in the wake of the most recent Federal Reserve policy announcement. Markets initially responded to the Fed’s decision to keep rates unchanged and the committee’s commentary by pushing the US dollar higher. However, that strength proved short-lived, with the greenback giving back early gains as market participants reconsidered the longer-term implications of Fed signals.
Key drivers behind the US dollar’s post-Fed movement include:
– **Monetary Policy Decisions:** The Federal Reserve opted to hold interest rates steady at its recent meeting, as widely expected.
– **Fed Chair Powell’s Commentary:** Powell noted progress but stressed caution and patience before considering rate cuts, contributing to initial dollar strength.
– **Market Sentiment Shift:** Despite hawkish undertones, US dollar buyers faded after the initial rally as traders focused on softer inflation data and rising bets on a September rate cut.
Markets are now recalibrating expectations as attention turns to upcoming economic data that could further influence Federal Reserve policy and the direction of the US dollar.
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### US Dollar Index (DXY) Technical Perspective
The US Dollar Index (DXY), which tracks the performance of the US dollar against a basket of six major currencies, is a crucial barometer for forex traders. The DXY has been sensitive to Fed actions and incoming US economic prints, including inflation and labor market data.
– **Recent Movement:** DXY punched higher following the Fed’s policy statement but quickly reversed, erasing most of those gains.
– **Technical Levels:** Key support for DXY lies near 104.00, with resistance close to 105.00.
– **Trading Range:** The index remains within a defined range as traders weigh evolving expectations for US monetary policy.
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### Factors Impacting US Dollar Performance
Multiple dynamics shape the US dollar’s trend in forex markets:
– **Inflation Data:** Softer inflation readings in both monthly CPI and PPI reports hint at easing price pressures, prompting speculation the Fed could cut rates sooner than anticipated.
– **Global Risk Sentiment:** Improved risk appetite globally has pressured the dollar, a traditional safe haven, as traders rotate into higher-yielding and risk-sensitive currencies.
– **Relative Monetary Policy:** Contrasts between the Fed and other central banks’ outlooks, particularly the European Central Bank and Bank of England, have added to USD volatility.
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### Upcoming Economic Data in Focus
With the immediate Fed decision absorbed, forex markets turn their focus to high-impact economic releases from other economies, most notably Australia’s labor market figures and UK consumer price inflation data. These releases will not only affect their respective currencies but could also influence broader risk appetite and cross rates like AUD/USD and GBP/AUD.
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