Market Data 
- The US Dollar sees substantial buying in the European session on Monday.
- European PMIs collapsed in September, as traders await the US ones on Monday.
- The US Dollar Index pops higher and reclaims 101.00 in early Monday trading.
The US Dollar (USD) strengthens on Monday and trades above 101.00 after the preliminary S&P Global and Hamburg Commercial Bank (HCOB) Purchase Managers Index (PMI) data portrayed a very sketchy picture for France, Germany, and the broader Eurozone. The nosedive in activity means issues ahead and shifts the negative focus now towards Europe. The Greenback is seeing a flight to safety, away from the Euro, which is bleeding on all fronts.
On the economic data front, traders will be able to compare the PMIs from Europe with the ones out of the US. The S&P Global PMIs for the United States (US) will be released ahead of the US trading session, with the Services component as the most important one. With nearly all PMI indicators in Europe in contraction, it rather looks like Europe is heading into a recession, while the US is still enjoying resilient activity.
Daily digest market movers: Back to the usual message
- The main event this Monday will be the preliminary US S&P Global PMIs release for September:
- Services data is expected to tick lower to 55.2 from the previous reading of 55.7.
- Manufacturing reading is expected to see a small uptick, though it remains in contraction at 48.5. That is a bit better than the 47.9 from August.
- The Composite number was at 54.6 in August, with no forecast available.
- US Federal Reserve speakers are set to shine their light with some comments on the current monetary policy stance:
- At 12:00 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic delivers a virtual speech about the US economic outlook at the Distinguished Speakers Seminar convened by the European Economics and Financial Centre at the University of London.
- Near 14:15 GMT, Federal Reserve Bank of Chicago President Austan Goolsbee delivers a speech about monetary policy and the US economy at the annual National Association of State Treasurers meeting in Chicago.
- Around 17:00 GMT, Federal Reserve Bank of Minneapolis President Neel Kashkari participates in a Q&A hosted by the Greater Kansas City Chamber of Commerce at the Science Museum of Minnesota.
- Equity markets are tumbling in Europe on the back of those ugly PMI numbers for Germany, France, and the broader Eurozone. Meanwhile, US futures are being dragged along and are down as well ahead of the US trading session.
- The CME Fedwatch Tool shows a 50.6% chance of a 25-basis-point rate cut at the next Fed meeting on November 7, while 49.4% is pricing in another 50-basis-point rate cut.
- The US 10-year benchmark rate trades at 3.74%, flirting with last week’s high at 3.76%.
US Dollar Index Technical Analysis: Watch out for the squeeze!
The US Dollar Index (DXY) seemed incapable of making a move higher last week when the Fed pulled the trigger on that 50 basis point rate cut. The Greenback could be the comeback kid this week, with the PMI releases on Monday probably painting a whole other picture for traders to consider. The European performance might be far bleaker than the US one, which means that the US Dollar deserves an upgrade (appreciation) to where it was trading last week.
The upper level of the September range remains at 101.90. Further up, the index could go to 103.18, with the 55-day Simple Moving Average (SMA) at 102.59 along the way. The next tranche up is very misty, with the 100-day SMA at 103.71 and the 200-day SMA at 103.78, just ahead of the big 104.00 round level.
On the downside, 100.62 (the low from December 28, 2023) is the first support, which could point to more weakness ahead. Should that take place, the low from July 14, 2023, at 99.58, will be the next level to look out for. If that level gives way, early levels from 2023 are coming in near 97.73.
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.
