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- US Dollar gathers momentum from strong data, eyes on PCE figures
US Dollar gathers momentum from strong data, eyes on PCE figures
- The US Dollar traded strongly against its rivals on Thursday, and the DXY index rose to monthly highs.
- GDP and Durable Goods data came in higher than expected as well as the weekly Initial Jobless Claims.
- Despite strong data, US bond yields and hawkish bets on the Fed declined.
The US Dollar (USD) measured by the US Dollar Index (DXY) rose toward 106.90, its highest level since early October, seeing nearly a 0.3% gain and then settled at 106.60 on Thursday. Since Tuesday, the DXY index has gained more than 1%, and the Greenback is outperforming its rivals as strong economic data increases its demand. However, dovish bets on the Federal Reserve (Fed) may limit those gains.
The United States economy is holding resilient and has yet to show signs of weakness from the Fed’s aggressive monetary tightening. During this week, the US reported that the S&P PMIs from October came in higher than expected, and the preliminary estimation of the Q3 Gross Domestic Product (GDP) also trounced consensus. On Friday, the US will release Personal Consumption Expenditures (PCE) figures from September, which may have an additional impact on the Greenback’s price dynamics.
Daily Digest Market Movers: US Dollar outperforms its rivals as Q3 GDP came in strong
- The DXY index continued climbing higher to a high of around 106.90 and then stabilized at 106.60, holding onto daily gains.
- On the data front, the Q3 GDP preliminary estimate showed that the economy grew at an annualised rate of 4.9%, higher than the 4.2% expected.
- In addition, The U.S. Census Bureau reported that Durable Goods Orders from September exceeded expectations. It came in at 4.7% MoM vs the expected 1.5%.
- On the negative side, weekly Initial Jobless Claims arrived at 210,000 vs the 208,000 expected.
- Meanwhile, US bond yields are falling. The 2-year rate fell to 5.04%, while the longer-term 5 and 10-year rates retreated toward 4.79% and 4.85%, respectively, contributing to the USD losing momentum.
- According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are still low, around 20%. In addition, the CME Group data suggests that a pause in November is nearly priced in.
- Investors await the Personal Consumption Expenditures figure from September on Friday to continue modelling their expectations on the next Fed decisions.
Technical Analysis: US Dollar Index continues gaining ground above the 20-day SMA
According to the daily chart, the technical outlook for the DXY Index remains neutral to bullish as the bulls are recovering ground and assert themselves above the 20-day Simple Moving Average (SMA). The Relative Strength Index (RSI) exhibits a positive slope above the 50 threshold, while the Moving Average Convergence (MACD) displays lower red bars. To add to that, the pair is above the 20,100 and 200-day SMAs, suggesting that the bulls are firmly in control of the bigger picture.
Supports: 106.35 (20-day SMA), 106.00, 105.70.
Resistances: 107.00, 107.30, 107.50.
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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