- The US Dollar ticks up ahead of the release of ADP private employment and ISM Services PMI data.
- French lawmakers will hold a vote of no confidence which, if successful, will topple the government.
- Fed Chairman Powell will speak during the American session, likely adding volatility to the US Dollar Dollar Index.
The US Dollar (USD) edges up slightly on Wednesday as a no-confidence vote in France is set to take place. Chances that Prime Minister Michel Barnier will survive the vote are slim to nil, with President Emmanuel Macron forced to select a new prime minister to form a new government in the coming weeks. Meanwhile, in the US, traders are starting to keep their powder dry ahead of Friday’s US Jobs Report.
On the economic data front, the Institute for Supply Management (ISM) is up next with a data release gauging the health of the US services sector. The Services Purchasing Manager Index (PMI) for November will be the most market-moving element for this Wednesday. The ADP private payroll estimate will also be published, and late in the US trading session, Federal Reserve (Fed) Chairman Jerome Powell will speak at the New York Times DealBook Summit in New York.
Daily digest market movers: ADP, ISM to dictate US markets
- The US Calendar kicks off this Wednesday at 13:15 GMT with the ADP Job Change numbers for November. Expectations are for an increase of 150,000, down from 233,000 in October.
- At 14:45 GMT, S&P Global will release its final reading of its November numbers for the Purchasing Managers Index. The services index is expected to remain unchanged at 57 while the Composite should remain stable at 55.3.
- The Institute for Supply Management will release its November survey for the Services sector at 15:00 GMT. The headline PMI is expected to soften at touch to 55.5 from 56 previously.
- Three Federal Reserve members will speak this Wednesday:
- at 13:45 GMT, Federal Reserve Bank of St. Louis President Alberto Musalem delivers a keynote speech on “Monetary Policymaking: Central Banking in a Changing World” at the College of Central Bankers Symposium in New York City, United States.
- Around 18:45 GMT, Federal Reserve Chairman Jerome Powell participates in a discussion at the New York Times DealBook Summit in New York.
- Closing off at 13:00 GMT, Federal Reserve Bank of San Francisco President Mary Daly is interviewed at PBS New Hour.
- Equities are looking for direction with some nervousness over South Korea and France limiting gains for this Wednesday. European equity indices and US futures are up less than 0.5% on average.
- The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 73.8%. A 26.2% chance is for rates to remain unchanged. The Fed Minutes and recent comments from several Fed officials have helped the rate cut odds for December to move higher.
- The US 10-year benchmark rate trades at 4.24%, ticking up from the 4.21% seen on Tuesday.
US Dollar Index Technical Analysis: Sit on your hands
The US Dollar Index (DXY) is ticking up slightly ahead of the Nonfarm Payrolls print of Friday. After the turmoil at the start of the week on the back of the French political stage, it looks that traders want to keep their powder dry going into Friday’s Jobs Report. Although Fed Chairman Jerome Powell is set to speak, not manyuch market- moving comments are expected.
On the upside, 106.52 (April 16 high) remains as the first resistance to look at after failing to close above it this week. Should the US Dollar bulls reclaim that level, 107.00 (round level) and 107.35 (October 3, 2023, high) are back on target for a retest.
Looking down,Should the French government fall and a new, more stable, government formation is set to take place, the pivotal level at 105.53 (April 11 high) comes into play before heading into the 104-region. Should the DXY fall all the way towards 104.00, the big figure and the 200-day Simple Moving Average at 104.03 should catch any falling knife formation.
US Dollar Index: Daily Chart
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.
