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- US Dollar trades higher after S&P Global PMIs and Jobless Claims data
US Dollar trades higher after S&P Global PMIs and Jobless Claims data
- The DXY index bottomed at weekly lows and managed to trim Wednesday’s losses
- The Fed's stance seems slightly dovish, unmistakably resisting overreaction to two months of hot inflation.
- S&P PMIs came in mixed, Jobless Claims figures came in stronger than expected.
The US Dollar Index (DXY) is currently trading at 103.80, marking a 0.50% increase, almost trimming all of Wednesday’s losses. The Greenback gained ground after mixed S&P preliminary PMIs from March and strong weekly Jobless Claims.
The overriding consensus is a start to an easing cycle in June and the timing of the next cut will be dictated by incoming data. With recent hot inflation figures, the Fed revised its inflation projections higher. However, Jerome Powell confirmed there will be no overreaction from the bank. This consideration pushed the Fed's stance more dovish, implying a less aggressive approach toward rates. The Dot Plot showed that the median rate prediction by the end of this year remains at 4.6%.
Daily digest market movers: DXY is trending higher near 103.80, finding its footing after a post-FOMC sell-off
- S&P Global's initial Purchasing Managers Survey for March showed a slight decrease in the Services PMI, dropping from 52.3 to 51.7.
- Conversely, there was an increase in the Manufacturing PMI, rising from 52.2 to 52.5. The Composite PMI, which stood at 52.5 in February, showed a slight dip to 52.2.
- Initial Jobless Claims for the week ending March 15 came in at 210K, lower than the 215K expected.
- After the FOMC's decision, US Treasury bond yields are increasing with the 2-year yield trading at 4.59%, the 5-year at 4.25%, and the 10-year at 4.27%.
DXY technical analysis: DXY displays bullish momentum, trims Wednesday’s losses
The technical outlook for DXY reflects a recovering bullish momentum. This viewpoint is primarily driven by the rising slope and positive territory of the Relative Strength Index (RSI), which signals increasing buying pressure. In addition, the augmentation of green bars in the histogram of the Moving Average Convergence Divergence (MACD) signifies that buying momentum is mounting.
In addition, the index recovered above the convergence of the 20, 100, and 200-day Simple Moving Averages (SMAs), further reinforcing a resilient bullish traction. If the DXY manages to stay above the 103.50-70 area, the outlook will be bright for the DXY.
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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