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- US Dollar mixed on Monday as debt ceiling talks stall, Asian currencies bite back
US Dollar mixed on Monday as debt ceiling talks stall, Asian currencies bite back
- US Dollar is showing a mixed picture with Asian currencies gaining room against the Greenback.
- US Dollar Index torn between Asian upspark on Monday and downbeat remaining G7 currencies.
- US stock futures point to a soft opening on Monday with small losses at hand.
The US Dollar (USD) is showing a very mixed picture this Monday with two clearly defined regions explaining why the US Dollar Index (DXY) is going nowhere. The US Dollar is gaining against most G7 currencies, with the exception of Asian pairs such as the South-Korean Wong (KRW) and the Japanese Yen (JPY), which are gaining traction against the Greenback. The Asian currency rise comes after several headlines from the PBoC , South-Korea trade data and Japanese Machinery Orders.
On the macroeconomic data front, traders will be mulling the progress on the United States debt ceiling talks after a brief hiccup over the weekend, when further talks got cancelled by the Republicans, as they walked away from the negotiating table. Meanwhile, US President Joe Biden has been able to restore the situation and talks began again on Sunday. This week, several important US macroeconomic data will be released and could have big impact on the US Dollar, withPMI numbers on Tuesday and Durable Goods and the PCE Price Index, which is the Fed’s preferred inflation metric, on Friday, leading the way.
Daily digest: US Dollar to float between debt ceiling talks and macroeconomic data
- Indices globally took a turn to the downside at the start of the Asian session on Monday, where Asian indices were able to create a turnaround and print positive numbers.
- US President Joe Biden commented on Monday morning out of Japan that calls with US House Speaker and Republican Kevin McCarthy went well and that talks will resume tomorrow.
- McCarthy, from his side, reiterated that talks will not progress as long as President Biden has not returned to the US.
- Over the weekend, US Treasury Secretary Janet Yellen threw a small spanner in the works by saying that the US Treasury has a quite low probability of being able to pay its bills by June 15.
- On Friday, US Fed Chairman Jerome Powell attended a panel discussion with former Fed Chair Ben Bernanke. Powell commented that rates may not need to rise as high given current credit stress.
- The CME Group FedWatch Tool shows that markets are flip-flopping again after these comments from Powell on Friday and have priced out again a rate hike for June, while an initial rate cut has been delayed until September instead of July before.
- The benchmark 10-year US Treasury bond yield trades at 3.64% and is showing further signs of retreat after peaking to 3.71% on Friday. This could allow for some US Dollar bearish correction.
US Dollar Index technical analysis: Will the uptrend hold?
The US Dollar Index (DXY) has taken out both the 55-day and the 100-day Simple Moving Averages (SMA), respectively, at 102.52 and 102.87. For now, the support looks to be holding at 103 and could see the DXY heading back to challenge 103.61, the high of past Thursday.
On the upside, 105.79 (200-day SMA) still acts as the big target to hit, as the next upside target at 104.00 (psychological level, static level) acts as an intermediary element to cross the open space.
On the downside, 102.87 (100-day SMA) aligns as the first support level to make sure that . In the case that breaks down, watch how the DXY reacts at the 55-day SMA at 102.52 in order to assess any further downturn or upturn.
US Dollar FAQs
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States of America, and the 'de facto' currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world's reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed's 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed's weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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