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- US Dollar steadies as traders brace for data-packed week
US Dollar steadies as traders brace for data-packed week
- The US Dollar trades mixed against its major peers on Monday.
- Markets are in a positive tone after a quiet weekend on the geopolitical front.
- The US Dollar Index trades in the mid-104.00 region, looking for direction.
The US Dollar (USD) trades broadly stable on Monday after a calm weekend without geopolitical headlines setting the tone. The Greenback will not be able to enjoy the calm start for long, because this week is full on the economic front. On Monday, a few important data points are set to be released in the run-up to the ultimate data point right at the end of the week: the US Employment Report, with its Nonfarm Payrolls print for May.
On Monday, all eyes will be on two PMI surveys gauging the health of the US manufacturing sector: the final reading of the S&P Global Manufacturing Purchasing Managers Index (PMI) for May and the more market-moving survey from the Institute for Supply Management (ISM).
Daily digest market movers: Manufacturing PMI on forefront
- Monday’s US calendar kicks off with the release of the final S&P Global Manufacturing PMI for May at 13:45 GMT. The preliminary estimate was at 50.9 and it is expected to remain unchanged.
- At 14:00 GMT, the Institute for Supply Management releases its recent findings from its monthly survey for May:
- The headline Manufacturing PMI index is expected to increase to 49.8 from 49.2.
- The Employment Index was at 48.6 in April, with no forecast available for May.
- The New Orders index came in at 49.1 a month ago, with no consensus view reported.
- The Prices Paid index should remain rather stable, from 60.9 to 60.
- Construction Spending is expected to rise 0.2% in April, swinging from a 0.2% contraction in March.
- Equities are trading in the green across the board, with all major indices from Asia, Europe and US futures up by an average of 1%.
- According to the CME Fedwatch Tool, Fed Fund futures pricing data suggests a 46.1% chance for keeping rates unchanged in September, against a 47.2% chance for a 25 basis points (bps) rate cut and a 6.7% chance for an even 50 bps rate cut. An interest rate hike is no longer considered an option.
- The benchmark 10-year US Treasury Note trades around 4.49%, in the middle of its monthly range between 4.34% and 4.61%.
US Dollar Index Technical Analysis: Tensions building towards NFP
The US Dollar Index (DXY) is hanging a bit in no man's land this Monday after its negative performance last week. When looking at a weekly chart, the DXY is clearly in consolidation, posting with lower highs and higher lows as sellers and buyers are being pushed towards each other. In this context, normally a breakout is then set to take place, something that could happen this week taking into account the very busy economic calendar ahead.
On the upside, the DXY index reclaimed the key 105.00 round level, which broadly aligns with the 55-day Simple Moving Average (SMA). It will be important to see if these levels hold support should the US data weaken. Once that is proven, look for 105.52 and 105.88.
On the downside, the 200-day SMA at 104.44 and the 100-day SMA around 104.42 are the last line of defence. Once that level snaps, an air pocket is placed between 104.30 and 103.00. Should the US Dollar decline persist, the low of March at 102.35 and the low from December at 100.62 are levels to consider.
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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