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- US dollar sees some light ahead of CPI data
US dollar sees some light ahead of CPI data
- Investors await US inflation data to shape their expectation of easing cycle pace.
- The consensus sees the easing cycle initiation from June after mixed NFP data on Friday.
- The US won’t release any relevant reports in Monday's session.
The US Dollar Index (DXY) is trading at 102.80 with mild gains in Monday’s session. Despite Powell's dovish tone and mixed employment figures, the Federal Reserve's (Fed) future stance on easing interest rates is expected to be influenced largely by US inflation data scheduled for release on Tuesday.
The US labor market saw a mixed performance in February. Despite the Unemployment Rate increasing, earnings figures mildly eased, while the job creation pace accelerated. Easing expectations didn’t see major changes, and the consensus still expects the first cut from the Fed in June.
Daily digest market movers: DXY sees some upside as markets brace for CPI
- The dual effect of Powell's speech coupled with mixed employment data seems to cap any upward movement of the USD.
- Investors keep their expectations steady for a June interest rate cut by the Fed, predicting a total easing of 100 basis points for this year.
- This week's data poses a lopsided risk for the Greenback as weakened inflation or Retail Sales data from February will further support the argument for a June rate cut.
- US Treasury bond yields are on the rise, trading at 4.51%, 4.07%, and 4.09% for the 2-year, 5-year and 10-year bonds, respectively.
DXY technical analysis: DXY displays a hint of bullish resurgence, bears still in charge
The indicators on the daily chart reflect a mixed sentiment in the market. The Relative Strength Index (RSI) remains in negative territory, but the positive slope posits a hint of bullish resurgence, indicating that the selling momentum could be weakening.
While the Moving Average Convergence Divergence (MACD) is in an area of flat red bars, this too implies that bears are losing their selling edge, possibly paving the way for a minor bullish correction.
The Simple Moving Averages (SMAs) scenario further emphasizes the bearish trend, with DXY charting beneath the 20, 100 and 200-day Simple Moving Averages. This underpins the dominant bearish market structure, but simultaneous signs of a bullish reversal cannot be utterly discounted.
Still, after losing 1% last week, the short-term outlook for the DXY remains more inclined to the bearish side. However, bears seem to be taking a breather, and if the bullish indications strengthen, buyers might attempt to seize control in the near future.
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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