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- US Dollar gains ground ahead of batch of Fed speakers
US Dollar gains ground ahead of batch of Fed speakers
- The US Dollar outperforms against most major Asian peers on Wednesday.
- Traders are gearing up for back-to-back Fed speakers lined up.
- The US Dollar Index trades around 105.50 and is making this week’s net performance a positive one.
The US Dollar (USD) extends gains on Wednesday, picking up momentum against most Asian peers. Leading the decline in Asian pairs is the Japanese Yen (USD/JPY) which is breaking above 155.00 and has already erased literally half of the move that took place with the interventions from the Japanese government. Markets seem to be testing Japanese authorities again to see if they will intervene ahead of 160.00, or on the contrary, will get the chance to fully erase the decline after last week’s intervention.
On Wednesday, All eyes will be on US Federal Reserve officials with three speakers lined up. Federal Reserve Vice Chair Philip Jefferson will speak around 15:00 GMT in a discussion at Exploring Careers in Economics. Federal Reserve Bank of Boston President Susan Collins will hold a speech to MIT Sloan students around 15:45 GMT. Last but not least important: Federal Reserve Governor Lisa Cook will discuss the Fed’s latest semi-annual Financial Stability Report around 17:30 GMT. Juicy detail: Both Fed’s Jefferson and Cook are Federal Open Market Committee (FOMC) voters for this year.
Daily digest market movers: One eye on USD/JPY
- During the Asia-Pacific (APAC) trading session, both Bank of Japan governor Kazuo Ueda and Japanese Minister of Finance Shunichi Suzuki made comments on the Japanese Yen.
- BoJ President Ueda said that monetary policy is not controlling forex.
- Finance Minister Suzuki contradicted that stance by saying that more actions will be needed if excessive moves occur again, adding that there is no line in the sand and interventions could take place at any moment or level, Bloomberg reported.
- This Wednesday kicks off around 11:00 GMT with the weekly Mortgage Bankers Association release of the Mortgage Applications survey for May 3. Mortgage applications declined 2.3% the previous week.
- Around 14:00 GMT, Wholesale Inventories data for March are set to be released. The preliminary reading points to a 0.4% decrease and economists expect it to be confirmed.
- The US Treasury is auctioning one of the benchmark notes: a 10-year auction at 17:00 GMT. Previous level was around 4.56% with the 10-year US Note trading at 4.47%.
- As mentioned in the above paragraph, a set of Fed speakers taking the stage this Wednesday:
- Fed’s Vice Chair Philip Jefferson will speak around 15:00 GMT.
- Fed’s Boston President Susan Collins is expected to speak around 15:45 GMT.
- Fed Governor Lisa Cook will discuss the Fed’s latest semi-annual Financial Stability Report in DC at 17:30 GMT.
- A red day is in the making in Asian equity markets after comments from Bank of Japan governor Kazuo Ueda and Japanese Minister of Finance Shunichi Suzuki. Both the Japanese Nikkei and Topix indexes closed over 1.5% in the red. Europe is trading flat while US futures are looking for direction.
- The CME Fedwatch Tool suggests a 91.1% probability that June will still see no change to the Federal Reserve's fed fund rate. Odds of a rate cut in July are also out of the cards, while for September the tool shows a 49.0% chance that rates will be 25 basis points lower than current levels.
- The benchmark 10-year US Treasury Note trades around 4.47%, in the middle of Monday’s range.
US Dollar Index Technical Analysis: It is not over yet
The US Dollar Index (DXY) is heading back in a bit of push-and-pull from what we saw earlier this year. Traders are keeping a half eye on the USD/JPY and should have it easy to time when the DXY will roll over or steam on higher. With the opposing comments from the BoJ and Ministry of Finance of Japan, markets are set to challenge if USD/JPY can head back to 160.00, which means some more US Dollar strength could be on the horizon.
On the upside, 105.52 (a pivotal level since April 11) needs to be recovered through a daily close above this level before targeting the April 16 high at 106.52 for a third time. Further up and above the 107.00 round level, the DXY index could meet resistance at 107.35, the October 3 high.
On the downside, the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.54 and 104.25, respectively, should provide ample support. If those levels are unable to hold, the 100-day SMA near 103.89 is the next best candidate.
US Dollar FAQs
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.
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.
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.
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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