US dollar bulls take a breather ahead of CB chairs speech

US dollar is taking a breather after a couple of volatile sessions ahead of Tuesday's highly anticipated events. The Dollar Index, which measures the greenback against a basket of six other currencies, fell 0.5% to 113.500. It is not far from the level of 114.58 it reached on Monday, which was its highest point since May 2002.

The European markets are expected to open higher after shares in Asia-Pacific were mixed on Tuesday, while US stock futures were higher following the market continued its dramatic decline in September on Tuesday morning.

The move in futures follows five straight days of losses for stocks, with the S&P 500 closing Monday at its lowest level in 2022. It is important to note that the Dow dropped more than 300 points on Monday, putting it in the bear market after falling more than 20% below its record high.

As indicated by technical indicators, the selling has been historic. A 10-day advance-decline line for the S&P 500 has hit a record low, meaning market breadth is at its lowest level in at least 32 years.

There are several factors contributing to the latest round of selling, including an aggressive Federal Reserve and surging interest rates, which have roiled the currency markets.

After US central bank officials indicated that they would remain focused on containing searing price pressures, despite volatility in global markets, investors worldwide continue to remain on the back foot, in spite of the recent recovery.

The World Bank has revised its growth forecast for East Asia and Pacific to 3.2%, down from its April prediction of 5%. According to its latest report released on Tuesday. As China's demand falls, the global economy may slow down, negatively affecting the stock market.

Pound rebounded

As traders paused for breath after a series of volatile sessions, the British pound edged higher Tuesday, rebounding to a degree after falling to a record low against the US dollar. On Tuesday, the British pound jumped from record lows to 1.08 and the 10-year gilt yield climbed to its highest level since 2008, with attention now turning to potential policy actions by the Bank of England (BoE) to stabilize local currency markets. 

In an attempt to calm markets, BoE Governor Andrew Bailey stated that the bank would raise interest rates as much as necessary at its next meeting, however, sterling's recovery has been limited given that the next meeting is over a month away.

Euro hit a firm support

Euro sellers reached the bottom border of the falling channel on the daily chart around 0.95533. Buyers will likely take cues from this hurdle and raise the price to test the previous level of interest at 0.98981. However, as long as the pair is trading within the descending channel, a bearish outlook remains intact.

Events of the day

Today's sessions feature several speeches from central bank officials, including the Fed's Powell and the ECB's Lagarde. The US Conference Board consumer confidence is expected to rise to 104.5 from 103.2 later in the day, while durable goods orders are expected to drop 0.4%.