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- US Dollar holds at high levels ahead of key US data
US Dollar holds at high levels ahead of key US data
- The US Dollar keeps squeezing markets with new highs.
- All eyes on US GDP numbers on Thursday.
- The US Dollar Index reaches a new 10-month high above 106.75.
The US Dollar (USD) is on track to lock in an eleventh consecutive week of gains as the interest-rate differential between the US and other countries gets bigger by the day. This differential keeps backing the US Dollar as it does the flight to safe havens, where the Greenback is the place to be. King Dollar’s rally hasn’t likely finished and might head toward the 52-week high when measured by the DXY US Dollar Index.
Investors' eyes are on the final estimate of US Gross Domestic Product numbers for Q2, due at 12:30 GMT.. Although the number is of big importance, analysts do not expect any market-moving reaction, as it is the third reading for the second quarter. Rather keep an eye on the usual weekly Initial Jobless Claims, which might be the devil in the detail.
Daily digest: US Dollar racks in piles of money
- Two big data points hit the markets at 12:30 GMT. The US Gross Domestic Product (GDP) annualised growth rate for the second quarter is expected at 2.1%, while the Price Index is set to remain unrevised at 2%. Core Personal Consumption Expenditures is seen growing at 3.7%. Bear in mind that this is the third reading, so big moves aren’t expected even as the GDP basket is facing its five-year reshuffling.
- The second big data point are the Jobless Claims: Initial claims are expected to head from 201,000 to 215,000. The Continuing Claims are seen heading from 1,662,000 to 1,675,000.
- Around 13:00 GMT, markets expect to hear comments from Austan D. Goolsbee, the president of the Federal Reserve Bank of Chicago.
- At 14:00 GMT, Pending Homes Sales data will come out. The monthly reading is expected to fall 0.8%, swinging from a 0.9% increase a month earlier..
- The Kansas City Fed Manufacturing Activity Index for September is expected to come in at 15:00 GMT. Previous was at -12.
- A big slew of US Federal Reserve (Fed) speakers are set to speak. Fed Board Governor Lisa D. Cook will speak at around 17:00 GMT, Richmond Fed President Thomas Barkin will do so at 19:00 and, lastly, Fed Chairman Jerome Powell will speak at 20:00 GMT.
- Equities are dropping again with Asian markets registering falls of more than 1%. European and US equities are mildly in the red.
- The CME Group FedWatch Tool shows that markets are pricing in an 80.4 % chance that the Federal Reserve will keep interest rates unchanged at its meeting in November.
- The benchmark 10-year US Treasury yield traded as high as 4.62% and takes a small step back from Monday’s peak as investors start to buy safe bonds as a shield for any possible US government shutdown.
US Dollar Index technical analysis: 107.00 as target this week
The US Dollar looks to be on a mission this week, surprising friends and foes with yet again a firm winning streak. Another weekly gain is almost locked in, making it an eleven straight week of gains for the US Dollar. With the US Dollar Index (DXY) breaking above 106.00, traders are eyeballing 107.00 next.
The US Dollar Index opened around 106.50, though the overheated RSI might make it difficult to maintain this level. Traders that want to hit a new 52-week high need to be aware that a lot of road needs to be covered towards 114.78. Rather look for 107.19, the high of November 30, 2022, as the next profit target on the upside.
On the downside, the recent resistance at 105.88 should be seen as first support. Still, it has just been broken to the upside, so it isn’t likely to be a strong barrier. Rather look for 105.12 to do the trick and keep the DXY above 105.00.
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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