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- US Dollar recovers slightly ahead of US trade data, Fed speakers
US Dollar recovers slightly ahead of US trade data, Fed speakers
- The Greenback partly recovers Friday’s losses.
- US Treasury yields trade sideways around 4.60%.
- The US Dollar Index is trying to recover from last week’s drop, though still has a long way to go.
The US Dollar (USD) is recovering little by little after having recorded a sharp decline on Friday. Traders are trying to let the dust settle in the aftermath of the disappointing US jobs report. Instead, investors try to look forward and might see the US Dollar Index recover some partial losses.
On the economic data front, a few more data points after a very calm Monday. The US trade balance data will be a good element to see how the US trade deficit is behaving. Meanwhile, speeches from Fed Governor Christopher J. Waller and New York Fed President John C. Williams f might deliver some more interest-rate guidance to the markets.
Daily digest: US Dollar recovers a touch
- China trade data showed a decline in exports by 6.4%, while imports rose by 3.0%.
- US Goods and Services Trade Balance for September is due to come out at 13:30 GMT. In August, the US posted a deficit of $58.3 billion, and a wider deficit of $60.2 billion is expected for September.
- At 13:55 GMT, the Redbook Index is due to come out. Previous was at 5.3%.
- The TechnoMetrica Institute of Policy and Politics is due to publish its Economic Optimism Numbers at 14:00 GMT. The previous reading stood at 36.3.
- Many Fed speakers will take the stage: at 15:00 GMT Fed Governor Christopher J. Waller is due to speak, followed by New York Fed President John C. Williams at 17:00 GMT.
- The US Treasury is heading back to the markets for a 3-year note auction .
- Consumer Credit Change numbers for September are due atr 20:00 GMT: Previous data saw a decline of $15.63 billion, and an increase of $10 billion is expected.
- Asian equities are setting the tone: red. That comes on the back of weaker export data out of China. Asian equities are all down over 1%. European equities are mildly in the red, as they areUS equity futures.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 90.2% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
- The benchmark 10-year US Treasury yield trades at 4.61%, finding some calmer ground after the volatile week last week.
US Dollar Index technical analysis: US Dollar has long road to recover
The US Dollar is no longer speculators’ favoured trade this year. Recent data from the Commodity Futures Trading Commission (CFTC) sees US dollar contracts coming off their highs. This means that speculators are starting to unwind their US Dollar Index holdings. This could be a sign that more profit taking is underway, and that more weakness could be in the cards for the Greenback.
The DXY is looking for support near 105.00, though it is struggling to find it. Any shock events in global markets could spark a sudden turnaround and favour safe-haven flows into the US Dollar. A return first to 105.51 would make sense, near the 55-day Simple Moving Average (SMA). A break above could mean a test on the descending trend line near 105.88.
On the downside, a big air pocket is developing and could see the DXY drop to 103.98, near the 100-day SMA, before finding ample support. In case it turns into a falling knife, 103.52 – the 200-day SMA – could act as circuit break. If that level snaps as well, the road is open to head to 101.00.
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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