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- US Dollar extends gains, favored by rising yields
US Dollar extends gains, favored by rising yields
- The DXY index slightly rose to 105.70.
- Jobless Claims from the first week of November 3 came in lower than expected.
- Fed’s Barkin delivered hawkish comments during the session. Still, bets on a hike in December are low.
The US Dollar (USD) is seeing gains against its rivals on Thursday, with the DXY Index ascending to 105.70. The Greenback price dynamics were set by strong Jobless Claims data and rising US bond yields, which seem to be limiting the downside for the USD. All eyes are now on Inflation next week, which could set the direction of the US Dollar in the short term.
Markets remain quiet this week as investors await fresh catalysts to place their bets on the next Federal Reserve (Fed) decision in December. Several officials were on the wires on Monday and Tuesday but didn’t provide any highlights. The focus seems to have turned to next week’s October inflation figures from the US. On Wednesday, Thomas Barkin commented that he wasn’t satisfied with the current inflation outlook, commenting that the job isn’t done.
Daily Digest Market Movers: US Dollar struggles to gain momentum despite Fed hawk’s rhetoric
- The US Dollar Index stands with mild gains at 105.70, with the bulls struggling to make a significant move.
- No high-tier reports will be released this week. Markets await next week’s inflation figures from the US and are still digesting last Friday’s US Nonfarm Payrolls report.
- The Initial Jobless Claims from the week ending November 3 came in at 217,000, lower than the expected 218,000 and fell in relation to its last reading of 220,000.
- As a reaction, the 2-year Treasury rate rose to 4.96%, while the longer-term 5 and 10-year rates increased to 4.55%, which seems to be limiting downside for the USD.
- Investors continue to be on the sidelines, awaiting high-tier reports to continue placing their bets on the next Fed decision.
- According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are extremely low, below 10%.
Technical Analysis: US Dollar Index momentum flatens, bears gather for downside
According to the daily chart, the technical outlook for the DXY Index remains neutral to bearish as the bulls are struggling to gather momentum with bears being around the corner. With a flat slope below its midline, the Relative Strength Index (RSI) suggests a period of stability in negative territory, while the Moving Average Convergence (MACD) displays stagnant red bars.
What gives the outlook neutrality is the index staying below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, indicating that the bulls still have the upper hand in the broader picture. As long as the bear manage to hold the index below this level, the index will remain vulnerable for further downside.
Support levels: 105.50,105.30,105.00.
Resistance levels: 105.80, 106.00, 106.10 (20-day SMA).
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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