Market news
22.07.2024, 16:47

US Dollar recovers while political factors weigh in

  • US Dollar DXY kicked off the week with a slump after a brief rebound at the end of last week but managed to clear daily losses.
  • The anticipated exit of President Joe Biden from the presidential race invigorates investors' risk appetite which might limit the upside.
  • Dovish Fed expectations might also present a challenge to the green currency.

As the week opened, the US Dollar, measured by the DXY index, exhibited a decline towards the 104.30 area and then recovered to 104.40. US President Joe Biden's expected departure from the presidential race has favored former President Donald Trump, and this upheaval has spurred investors to lean towards riskier assets. Complementing this, the expectation of a dovish stance from the Federal Reserve continues to present challenges to the Greenback. Further indicators to look out for during the week are the Gross Domestic Product (GDP) Q2 revisions and Personal Consumption Expenditures (PCE), which are widely anticipated to add an element of volatility in the USD.

Although the US economy is indeed showing early signs of disinflation, market confidence in a favorable September rate cut from the Federal Reserve remains steady. Even so, Fed officials express a strained demeanor and emphasize the importance of adhering to a data-dependant approach before rushing into any hasty interest rate reductions.

Daily digest market movers: DXY has a bumpy ride due to Fed policy outlook and impending US elections

  • The outlook for the Fed's policy and the unsettled politics of the US election continue to be the two major catalysts driving the USD's trajectory.
  • As former President Trump becomes the favorite, after Joe Biden’s extir, investors will focus on three broad areas: immigration, tariffs, and fiscal policies. So markets will keep an eye on Trump’s hints about its economic plans.
  • The CME FedWatch Tool sheds light on the widespread anticipation about the September rate cut as investors are pricing in a 25 bps cut.
  • The upcoming GDP and PCE data are likely to shape the USD dynamics for the week ahead as they will guide markets on the next Fed moves.

DXY Technical outlook: Bearish signs persist despite attempts to rise above 200-day SMA

The DXY index might have tallied minor gains last week, but the bearish outlook remains unchanged, primarily as the index faces a tough time ascending above the 200-day Simple Moving Average (SMA) at 104.30. The bearish stance is further supported by the daily indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), which remain in negative area, suggesting a continuation of downside momentum.

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.

 

© 2000-2024. All rights reserved.

This site is managed by Teletrade D.J. LLC 2351 LLC 2022 (Euro House, Richmond Hill Road, Kingstown, VC0100, St. Vincent and the Grenadines).

The information on this website is for informational purposes only and does not constitute any investment advice.

The company does not serve or provide services to customers who are residents of the US, Canada, Iran, The Democratic People's Republic of Korea, Yemen and FATF blacklisted countries.

AML Website Summary

Risk Disclosure

Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.

Privacy Policy

Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.

Please contact our PR department if you have any questions or need assistance at pr@teletrade.global.

Bank
transfers
Feedback
Live Chat E-mail
Up
Choose your language / location