- The US Dollar turns tide and heads back up after US data release.
- Concerns were released overninght on the US Dollar from central banks of Europe and Asia.
- The US Dollar Index turns flat and looks to be heading back to 106.00.
The US Dollar is turning green against most major peers after this Thursday’s data underlined yet again the US Dollar exceptionalism. Upbeat surprises all around for the weekly Jobless numbers and as well for the Philadelphia Fed Manufacturing Survey. The losses from Wednesday and the overnight APAC session are getting erased.
During that same Asian-Pacific session, several parties screaming bloody murder on the stronger Greenback. European Central Bank (ECB) President Christine Lagarde was the first to start mentioning that the ECB is concerned with the weaker Euro against the US Dollar (EUR/USD) and sees inflation trickling into the Eurozone on the back of that. Additionally, a joint statement was released overnight from the Finance Ministers of Japan and South Korea, addressing their weaker currencies to the US because of the Greenback’s recent outperformance, causing inflation issues for their local monetary policy.
On the economic data front, all eyes now on the Leading Indicator Index and Home Sales. Add three Fed speakers and the US Dollar could be trading either back above 106.00 or snap even 105.00 in case a perfect storm gets formed.
Daily digest market movers: Data back at it
- Headlines came out from Iran’s Guard Commander Haghtalab said that Israel’s nuclear facilities have been identified and marked and will be designated targets, should Israel attack Iran, Tasnim News Agency reports.
- An ex-Mossad intelligence chief officer said to Sky News that striking Iran’s nuclear factilities is on the table for Israel to target in its retaliation against Iran.
- The first batch of data already got released:
- Weekly Jobless Claims data is set to be released:
- Initial Claims for the week ending April 12 came in at 212,000, unchanged from 212,000 seen a week before.
- Continuing Claims for the week ending April 5 came in at 1.812 million with the previous week’s data was 1.810 million.
- Philadelphia Fed Manufacturing Survey for April was a big beat with 15.5 agaisnt 3.2 previous.
- Weekly Jobless Claims data is set to be released:
- At 14:00 GMT the Existing Home Sales data for March will be released. Figures are set to show a decrease to 4.20 million from 4.38 million in February.
- Three US Federal Reserve speakers on Thursday:
- At 13:05 GMT, Federal Reserve Governor Michelle Bowman delivers opening remarks at the New York Fed Regional Conference.
- Federal Reserve Bank of New York President John Williams will participate in a discussion at the Semafor World Economy Forum in Washington D.C. at 13:15 GMT.
- Federal Reserve Bank of Atlanta President Raphael Bostic will make two appearances on Thursday. Near 15:00 GMT in a Q&A about the US economic outlook and again at 21:45 GMT.
- Equities are unable to keep positive momentum going and are already in Europe turning marginally in the red, while US equity futures are giving up intraday gains and are turning flat.
- According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the May meeting are at 96%, while chances of a rate cut stand at 4%.
- The benchmark 10-year US Treasury Note trades around 4.60%, and ticks back up from this week’s low, though still quite far off Tuesday’s high of 4.69%.
US Dollar Index Technical Analysis: Concerns should not be an issue
The US Dollar Index (DXY) is facing a sudden pile-up of headlines that goes against any US Dollar strength. That some central banks around the globe are suddenly expressing their disfavour of the strong US Dollar is creating a bit of a knee jerk reaction, with traders taking their profits for now. In the longer run, towards June and the summer, the wider rate differential should still favor the Greenback and should see the DXY Index heading higher again.
On the upside, the fresh Tuesday’s high at 106.52 is the level to beat. Further up and above the 107.00 round level, the DXY Index could meet resistance at 107.35, the October 3 high.
On the downside, the first important level at 105.88, a pivotal level since March 2023, is being proved at the time of writing. Further down, 105.12 and 104.60 should also act as a support ahead of the region with both the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.17 and 103.91, respectively.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
