US Dollar strengthens to monthly highs as Waller pushes back on early rate cut bets

Source Fxstreet
  • The US Dollar extends its rally to a three-day winning streak. 
  • Traders are diving into the Greenback on Fed’s Waller hawkish tilt. 
  • The US Dollar Index jumps to a new high for March. 

The US Dollar (USD) rallies and rejoices with the return of King Dollar after Fed Board Member Christopher Waller has pulled the plug on a June interest-rate cut. The Greenback is rolling through the markets and is up against every major G20 peer. Markets are heading into the direction of fewer and later rate cuts while the economy and inflation flair up.

A very chubby calendar is ahead on Thursday, although many data are finalreadings from preliminary estimates and thus have less potential to move markets. Examples of these are the US Gross Domestic Product reading for Q4 and the University of Michigan numbers for March. Rather look for the Jobless Claims and the Chicago Purchasing Managers Index (PMI) to trigger a bit of follow-through in the US Dollar strength this Thursday. 

Daily digest market movers: Cherry picking in the data

  • The first batch of data is due at 12:30 GMT, and can be cut into two pieces:
    • The US Gross Domestic Product final reading for Q4 will be released:
      • Headline GDP is expected to remain unchanged from the prior estimate at 3.2%.
      • The GDP Price Index  is set to remain at 1.7%.
      • Core Personal Consumption Expenditures is expected at 2.1%.
    • This week’s Jobless Claims:
      • Initial Claims are expected to come out at 215,000, a touch higher from last week’s 210,000.
      • Continuing Claims should remain stable at 1.807 million.
  • The Chicago Purchasing Manager Index for March is expected to head from 44 to 46 at 13:45 GMT.
  • At 14:00 GMT, the final reading for the University of Michigan for March will come out:
  • Consumer Sentiment is expected to remain unchanged at 76.5.
  • Consumer Inflation expectations will remain stable as well at 2.9%.
  • The Kansas Fed Manufacturing Index for March will be released at 15:00 GMT, and was previously at 3. No forecast is available.
  • Equities are mildly in the green in the European trading session. US Equity futures look rather flat ahead of the opening bell. 
  • According to the CME Group’s FedWatch Tool, expectations for the Fed’s May 1 meeting are at 94.8% for keeping the fed funds rate unchanged, while chances of a rate cut are at 5.2%.
  • The benchmark 10-year US Treasury Note trades around 4.21%, up from 4.18% earlier this week. 

US Dollar Index Technical Analysis: Choke holding doves

The US Dollar Index (DXY) got fired up by Fed’s Waller overnight after the official pushed back against June rate cut expectations and obliterated any hopes for cuts from the US Federal Reserve before the summer. US Dollar bulls chased the DXY higher on the back of it, which results in a fresh high for March and the February highs are coming into reach now. Should the Personal Consumption Expenditures (PCE) Price Index bear a red hot inflation label again, expect for the DXY to quickly reach 105.00 and higher. 

That first pivotal level for the DXY at 104.60 has been broken, where last week’s rally peaked.  Further up, 104.96 remains the level to beat in order to tackle 105.00. Once above there, 105.12 is the last resistance point for now before the Relative Strength Index (RSI) will trade in overbought levels. 

Support from the 200-day Simple Moving Average (SMA) at 103.75, the 100-day SMA at 103.48, and the 55-day SMA at 103.72 are unable to show their importance as support because traders didn’t wait for a drop to those levels for a turnaround. The 103.00 big figure looks to remain unchallenged for longer, after the decline in the wake of the Fed meeting last week got turned around way before reaching it. 

 

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Gold Price Forecast: XAU/USD recovers some lost ground above $2,050, US ADP report eyedGold price (XAU/USD) bounces off the multi-day lows near $2030 per ounce and hovers around $2,042 during the early Asian session on Thursday.
Author  FXStreet
Jan 04, 2024
Gold price (XAU/USD) bounces off the multi-day lows near $2030 per ounce and hovers around $2,042 during the early Asian session on Thursday.
placeholder
Gold holds steady below $4,150 amid elevated US yields Gold price (XAU/USD) trades on a flat note near $4,140 during the early Asian session on Tuesday. Pressure from a stronger US Dollar (USD) and elevated US Treasury yields was offset by reduced expectations of a Federal Reserve (Fed) rate hike this month.
Author  FXStreet
Oct 06, Tue
Gold price (XAU/USD) trades on a flat note near $4,140 during the early Asian session on Tuesday. Pressure from a stronger US Dollar (USD) and elevated US Treasury yields was offset by reduced expectations of a Federal Reserve (Fed) rate hike this month.
placeholder
WTI rises to near $89.50 as Middle East supply threats offset Persian Gulf recoveryWest Texas Intermediate (WTI) oil price extends its gains for the second successive day, trading around $89.50 per barrel during the Asian hours on Wednesday. Crude oil climbed as persistent risks to Middle East energy flows overshadowed signs of rising supply from the region.
Author  FXStreet
Oct 07, Wed
West Texas Intermediate (WTI) oil price extends its gains for the second successive day, trading around $89.50 per barrel during the Asian hours on Wednesday. Crude oil climbed as persistent risks to Middle East energy flows overshadowed signs of rising supply from the region.
placeholder
Gold falls to a two-month low as real yields bite — can $4,000 hold?Gold hit a two-month low on 7 October, with spot touching roughly $4,090 and COMEX December futures closing at $4,140.70, even as the New York Fed's one-year inflation expectation rose to 3.9% — its highest since May 2023. The paradox resolves through real yields: the 30-year Treasury yield reached 5.732% intraday, its highest since 2002. Here are the levels, the institutional split, and the scenarios into tonight's jobless claims and 30-year auction.
Author  Irene Q.
Yesterday 07: 32
Gold hit a two-month low on 7 October, with spot touching roughly $4,090 and COMEX December futures closing at $4,140.70, even as the New York Fed's one-year inflation expectation rose to 3.9% — its highest since May 2023. The paradox resolves through real yields: the 30-year Treasury yield reached 5.732% intraday, its highest since 2002. Here are the levels, the institutional split, and the scenarios into tonight's jobless claims and 30-year auction.
placeholder
【Daily Brief】Gold rebounds 1% off a two-month low, Nasdaq drops 1.25% and yields ease — the storm premium keeps WTI near $91Gold trades at $4,174 after rebounding from Wednesday's $4,090 two-month low, the Nasdaq fell 1.25% while the Dow edged higher, and the 10-year Treasury eased to 5.23% from the week's highs. Hurricane Isaias keeps about 25% of Gulf output shut in with WTI near $91, and bitcoin holds below $82,000. The next scheduled tests are the EIA report on 15 October and the FOMC on 27-28 October.
Author  Irene Q.
1 hour ago
Gold trades at $4,174 after rebounding from Wednesday's $4,090 two-month low, the Nasdaq fell 1.25% while the Dow edged higher, and the 10-year Treasury eased to 5.23% from the week's highs. Hurricane Isaias keeps about 25% of Gulf output shut in with WTI near $91, and bitcoin holds below $82,000. The next scheduled tests are the EIA report on 15 October and the FOMC on 27-28 October.
Related Instrument
goTop
quote