Market Data 
- The US Dollar is udnergoing its worst week in over one year.
- The ECB has cut rates as expected, though delivered a hawkish statement.
- The US Dollar Index faces devastation and devalues over 3% so far this week.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is seeing a seismic shift in its trading regime this week from past few years. The index trades near 104.00 at the time of writing on Thursday. Several banks and traders are reporting that big clients are repatriating their foreign investments denominated in US Dollars back into their domestic currencies. This might mean such volumes will not come back anytime soon, the FT reports.
The repatriation comes after weakening US economic data which has worried markets about the possibility of Trump’s tariffs having an impact on domestic inflation and has brought back firm recession fears this week. Clearly, United States (US) President Donald Trump’s approach is starting to have some negative fallout.
Meanwhile, the focus will now shift to Europe where a high-stakes European meeting is taking place this Thursday. EU leaders will discuss the spending bill on defense after Trump made clear the US will no longer be playing an active part in NATO. US support to Ukraine has been rolled back by now as well. The European Central Bank (ECB) has lowered its policy rate by 25 basis points as expected, though changed the language of its statement to a bit more hawkish.
Daily digest market movers: ECB delivers hawkish cut
- The US Challenger Job Cuts were due for February. A very negative number with a surge by more than 100% to 172,017 head counts compared to 49,795 last month.
- The European Central Bank (ECB) has released its monetary policy decision. As expectated, an interest rate cut by 25 basis points (bps) from 2.75% to 2.50% on its benchmark deposit rate.The ECB revised its inflation outlook to 2.3% for 2025 against 2.1% initially.
- The US weekly Jobless Claims and US Trade Balance data for January has been released:
- Initial claims for the week ending on February 28 came in at 221,000, stronger than the expected 235,000 and lower than last week’s print of 242,000. Continuing Claims for the week ending on February 21 came in higher at 1,897 million, a miss on the 1.880 million expected and from the previous 1.862 million.
- The US Goods Trade Balance for January saw a wider deficit by $156.8 billion, a big miss on the $127.4 billion deficit expected, coming from a $153.3 billion deficit in December.
- At 13:45 GMT, ECB Chairman Christine Lagarde will speak and give comments on the latest monetary policy decision.
- Equities are facing overall near 1% losses across the board in Europe and the US after again worrying US data.
- The CME Fedwatch Tool projects a 79,6% chance of an interest rate cut in the June meeting, with only a 20.4% chance to keep interest rates at the current range of 4.25%-4.50% in June.
- The US 10-year yield trades around 4.30%, off its near five-month low of 4.10% printed on Tuesday.
US Dollar Index Technical Analysis: Is this a new era?
The US Dollar Index (DXY) is bleeding this week, and the reason for the outflows is worrisome. Several trading desks report that many European pension funds, hedge funds, and other big institutions are repatriating their US Dollar-denominated assets back to their domestic currencies. That means a substantial volume parked for years under the US Dollar has now been moved and does not seem to be coming back anytime soon as long these recession fears will still take place.
On the upside, the first upside target is to recover the 200-day Simple Moving Average (SMA) at 105.04. Once that level has been recovered, several near-term resistances are lined up, with 105.53 and 105.89 identified as two heavy pivotal levels before breaking back above 106.00.
On the downside, 104.00 has seen selling pressure but tries to hold for now. Further down, 103.00 could be considered as a bearish target in case US yields roll off again, with even 101.90 not unthinkable if markets further capitulate on their long-term US Dollar holdings.
US Dollar Index: Daily Chart
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
