US Dollar declines as Fed easing expectations intensify

• US Dollar dealt bad hand as market considers higher initial Fed rate cut.
• Market prices in high odds of a 50 bps cut at Wednesday's FOMC meeting.
• Fed Dot Plot unlikely to validate an aggressive rate cut path.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, is extending a corrective decline amid rising dovish expectations for the Federal Reserve's (Fed) meeting on Wednesday. The DXY is trading lower for the third consecutive day, near 100.70, as the market prices in a decently high probability of a 50-basis-point cut.

With signs of a slowdown in inflation and cooling in the labor market, investors have grown confident in a 50 bps cut and over 100 bps of easing by year-end.

Daily digest market movers: US Dollar declines ahead of FOMC meeting

• Fed easing expectations surge ahead of Wednesday's FOMC decision, buoyed by lukewarm inflation data.
• Analysts widely anticipate a 25 bps rate cut, but some project a bolder 50 bps move, while markets price in a 65% chance of the latter.
• Market expectations of 250 bps of easing over the next year are deemed excessive, with the Fed's Dot Plot unlikely to support such an aggressive path.
• FOMC vote will be closely scrutinized for signs of internal divisions.

Daily digest market movers: DXY shrugs off weak sentiment data on the back of hawkish bets

Technical indicators for the DXY index have resumed their downward trend in negative territory. The index has broken below its 20-day Simple Moving Average (SMA), indicating a loss of buying momentum. The Relative Strength Index (RSI) is below 50, suggesting further declines. The Moving Average Convergence Divergence (MACD) is also trending lower, confirming the bearish outlook.

Support levels to watch are 100.50, 100.30 and 100.00, while resistance levels to consider are 101.00, 101.30 and 101.60.