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- US Dollar mixed as more Fed speakers are set to make comments
US Dollar mixed as more Fed speakers are set to make comments
- The Greenback trades flat and is looking for direction.
- Traders will be looking for clues and guidance from Fed Chairman Powell.
- The US Dollar Index is steady in the 105-area and looks to be awaiting a catalyst for a move in any direction.
The US Dollar (USD) is steerless this week and is looking for direction, or at least some kind of driver that will push it in any direction. The fact that the US Dollar Index is right in the middle of this week’s trading range, clearly points to some fatigue in the Greenback while traders are trying to assess the current situation in terms of a recession or soft landing for the US economy.
On the economic data front, traders will be looking for clues again from the US Federal Reserve speakers that are on the docket for this Thursday. The weekly jobless claims could shed some light and could confirm the weaker US jobs report from last week, should there be an uptick in unemployment numbers. That could be an early sign on the wall and could send the US Dollar weaker against most major currencies.
Daily digest: US Dollar braces for jobless numbers
- The US 10-year bond auction on Wednesday was quite a success: The bond got placed at 4.519%, from earlier 4.610%. The Bid/Cover Ratio was at 2.45 against 2.50 previous. So for every tranche there was more demand than needed to get the bond filled.
- Philadelphia Fed president Patrick Harker said early on Thursday that rates should stay higher for longer and that the fight against inflation is still ongoing.
- Early morning comments from European Central Bank’s Luis De Guindos, made it clear he thought rate cuts were too premature to be factored in, and saw risk for an inflation surge in the next months.
- Near 13:30 GMT the Jobless Claims are due to come out:
- Initial Jobless Claims are expected to rise from 217,000 to 218,000.
- Continuing Jobless Claims are expected to head from 1.818 million to 1.820 million.
- Atlanta Federal Reserve President Raphael Bostic is due to release comments around 14:30 GMT and near 16:00 Thomas Barkin from the Richmond branch is due to make some comments.
- The US Treasury will have busy days as well and will be more than happy to do two bond placements at some less elevated rate levels: a 4-week bill and a 30-year bond auction are due to take place at 16:30 GMT and 18:00 GMT.
- To close the day off, traders will brace for comments from US Federal Reserve Chairman Jerome Powell around 19:00 GMT, at a panel discussion on monetary policy for the IMF.
- Equities are painting a very binary view this Thursday: Japan equities are in the green with over 1% profit for the Nikkei and the Topix. The Chinese Hang Seng is flat, together with European and US equities.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 90.4% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
- The benchmark 10-year US Treasury yield trades at 4.50%, after a successful allocation by the US Treasury earlier on Wednesday.
US Dollar Index technical analysis: US Dollar hanging on Powell’s lips
The US Dollar has partially made good after its weak performance at the end of last week. That said, the recovery does not look strong enough for the US Dollar Index (DXY) to be able to recoup all the losses incurred by Friday.
The DXY was looking for support near 105.00, and has been able to bounce ahead of it. Any shock events in global markets could spark a sudden turnaround and favour safe-haven flows into the US Dollar. A rebound first to 105.85 would make sense, a pivotal level from March 2023. A break above could mean a revisit to near 107.00 and recent peaks printed there.
On the downside, 105.10 is still acting as a line in the sand. Once the DXY slides back below that, a big air pocket is opening up with only 104.00 as the first big level where the 100-day Simple Moving Average (SMA) can bring some support. Just beneath that, near 103.50, the 200-day SMA should provide similar underpinning.
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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