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- US Dollar flatlines as Fed speakers take over Tuesday’s calendar
US Dollar flatlines as Fed speakers take over Tuesday’s calendar
- The Greenback trades flat, attempting to push against the recent downtrend.
- US traders will hear from no less than four Fed members this Tuesday.
- The US Dollar Index is steady above 103 and tries to head back to 104.
The US Dollar (USD) is trying to put up a fight this Tuesday as the downtrend is coming to a halt for now. Best way to look at it is via the US Dollar Index (DXY) which is seeing a little bit of a bounce in Asian trading this Tuesday, with the DXY holding above 103. The economic calendar this Tuesday could spark some more movements in favour of the Greenback again and see the bounce add another leg up later in the trading session this Tuesday.
Besides some rather light US data points, markets can look forward to comments from no less than four US Federal Reserve members. Two of them are actually speaking twice this Tuesday, so that makes it in total seven guidance events for the markets. Expect to see traders look for clues on any further confirmation that the Fed is truly done hiking, or more tightening is needed according to some members.
Daily digest: Fed speakers rule
- As mentioned in the paragraphs above, four Fed officials are due to speak:
- Austan Goolsbee from the Chicago Fed is due to speak around 15:00 GMT and will close off this Tuesday with comments at 22:00 GMT.
- Just five minutes after Goolsbee, Christopher Waller from the Board of directors will speak at 15:05 GMT.
- Michelle Bowman, who sits at the Board of Governors of the Fed, will speak around 15:45 GMT.
- Fed’s Vice Chairman Michael Barr will speak twice this Tuesday: Once at 18:05 GMT and once at 20:30 GMT.
- Near 13:55 GMT the Redbook Index for the week of NOvember 24th is due to come out. Previous was at 3.4%.
- At 14:00 GMT the Housing Price Index for September is due. Previous was a rise of 0.6% with 0.4% forecasted.
- At that same time, 14:00 GMT, the Case-Shiller Home Price Index is due as well. Previous was at 2.2% with 4% forecasted.
- At 15:00 GMT markets will hear from the US consumer as the Consumer Confidence for November will be due. Previous was at 102.6 and should soften a touch to 101.
- Be on the lookout for the Richmond Fed Manufacturing Index for November as well at 15:00 GMT, expected to head from 3 to 1.
- The US Treasury will head to markets to auction a 52-week Bill and a 7-year Note respectively at 16:30 GMT and 18:00 GMT.
- Equities are continuing their decline from Monday, with nearly every major index in the red across the globe. in Asia the Hong Kong Hang Seng Index is down by 1%. European indices and US equity futures are rather mildly in the red and can still turn around the ship in the course of this Tuesday.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 96.6% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. The chance for another hike is gaining by 3.4%.
- The benchmark 10-year US Treasury Note traders at 4.38% and is steady after briefly hitting 4.51%.
US Dollar Index technical analysis: Divergence
The US Dollar is breaking up the pattern traders saw forming over the past few days and which has led to the decline in the Greenback. US Yields are continuing to decline, narrowing the yield gap with other developed currencies. Although, the Greenback on its own is not following suit this Tuesday, breaking up the correlation, there is a risk that the correlation kicks in again later today and might see another snap lower in the US Dollar Index.
The DXY is hanging below the 200-day Simple Moving Average (SMA), which is near 103.62. The DXY could still make it back up there, should US traders come back in the market and start buying the current dip. A two-tiered pattern of a daily close and next an opening higher would quickly see the DXY back above 104.25, with the 200-day and 100-day SMA turned over to support levels.
To the downside the 200-day SMA is losing its support properties. The lows of last week at 103.18 and 102.98 would rather be seen as levels for a brief bounce. Should any of the US numbers this week be a substantial disappointment, look for even a 2.5% devaluation in the Greenback to 100.82 with little to support along the way.
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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