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- US Dollar holds steady ahead of mid-tier US data releases
US Dollar holds steady ahead of mid-tier US data releases
- US Dollar struggles to build on Wednesday's gains.
- US Dollar Index consolidates in a narrow range above 100.00.
- US weekly Initial Jobless Claims and June Existing Home Sales data will be released on Thursday.
The US Dollar (USD) finds it difficult to preserve its strength early Thursday after having outperformed its major rivals on Wednesday. The US Dollar Index (DXY), which tracks the USD's valuation against a basket of six major currencies, went into a consolidation phase above 100.00 ahead of US data releases.
The US Department of Labor will publish the weekly Initial Jobless Claims data, and the National Association of Realtors (NAR) will release the Existing Home Sales data for June later in the day.
Daily digest market movers: US Dollar waits for the next catalyst
- The Wall Street Journal reported early Thursday that the United States banned 14 Iraqi banks from using the USD in transactions on suspicion of these banks funnelling USDs to Iran.
- China's ambassador to Washington, Xie Feng, said late Wednesday that China will respond if the US were to impose more curbs on the country's chip sector.
- Nasdaq Futures are down nearly 1% on Thursday following uninspiring earnings from big US tech firms after the closing bell on Wednesday.
- The Federal Reserve Bank of Atlanta's GDPNow model forecasts a 2.4% US GDP growth in the second quarter.
- The monthly data published by the US Census Bureau showed Wednesday that Housing Starts declined 8% on a monthly basis in June, following the 15.7% increase (revised from +21.7%) recorded in May. In the same period, Building Permits fell 3.7%, swinging from May's 5.6% increase.
- The USD managed to capture capital outflows out of Pound Sterling early Wednesday after data from the UK showed that inflation softened at a faster pace than expected in June. Moreover, the sharp upsurge seen in the USD/JPY pair following Bank of Japan (BoJ) Governor Kazuo Ueda's dovish comments reaffirmed strengthening demand for the USD.
- Retail Sales in the US rose 0.2% in June to $689.5 billion, the US Census Bureau reported on Tuesday. The 0.3% increase recorded in May had been forecast to reach 0.5% in June, but the data came in far below. Retail Sales Ex-Autos increased 0.2% in the same period, coming in also slightly below the market expectation of 0.3%.
- Industrial Production in the US contracted 0.5% for the second straight month in June, data from the US Federal Reserve's showed Tuesday.
- The benchmark 10-year US Treasury bond yield clings to modest recovery gains near 3.8% on Thursday.
- US Treasury Secretary Janet Yellen told Bloomberg on Monday that there is a good chance that the Biden administration will go ahead with outbound investment controls on China.
- The US Dollar weakened significantly last week as soft inflation data revived expectations about the Federal Reserve reaching the terminal rate with a 25-basis-point (bps) rate hike in July.
- The Consumer Price Index (CPI) in the US rose 3% on a yearly basis in June, following the 4% increase recorded in May. The annual Producer Price Index (PPI) edged 0.1% higher in the same period.
- Commenting on the USD's outlook: "In case of an increasingly rapid fall in inflation and weakening economic data, the market might increasingly rely on key rates not remaining at high levels for a long time, whereas rate cuts before the end of the year are becoming increasingly likely," said Antje Praefcke, FX Analyst at Commerzbank. "That would cause the USD to ease further."
Technical analysis: US Dollar Index is yet to gather bullish momentum
The Relative Strength Index (RSI) indicator on the daily chart rose above 30 on Wednesday but turned sideways on Thursday, suggesting that the US Dollar Index (DXY) remains technically bearish following a short-lasting correction.
On the downside, critical support is located at 100.00 (psychological level). If the DXY index makes a daily close below that level, sellers could take action. In that case, 99.20 (static level from March 2022) aligns as next support before 99.00 (psychological level) and 98.30 (200-week Simple Moving Average).
Looking north, 100.50 (Wednesday high) forms interim resistance before 101.00 (former support, static level), 101.50 (static level) and 101.80 (20-day Simple Moving Average).
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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