US Dollar reaches highest value since November following PPI and Jobless Claims

Source Fxstreet
Apr 11, 2024 16:01
  •  DXY Index is currently trading around the high level of 105.45, realizing gains.
  • Core PPI for March came in higher than expected on Thursday.
  • Weekly Jobless Claims also came in hot.

The US Dollar Index (DXY) is currently trading at 105.45, marking its highest position since November 2023.  The Greenback continues to rise on the back of hawkish bets on the Federal Reserve (Fed) due to hot inflation figures. A strong labor market also raises the appeal of the Greenback.

After a robust labor market report and signs of rising inflation in March, Fed officials might begin indicating that they need more proof of the economy slowing down before lowering rates. Consequently, US Treasury yields could keep climbing, which would be advantageous for the USD.


Daily digest market movers: Dollar edges higher on strong data, Treasury yields continue climbing

  • Producer Price Index (PPI) for March increased by 0.2% MoM and 2.1% YoY, falling short of predicted figures.
  • The annual core PPI surpassed predictions with a 2.4% rise on a yearly basis compared to the expected 2.3% increase and 2% recorded in February.
  •  Weekly Initial Jobless Claims showed improvement, registering at 211K, lower than the anticipated 215K and a reduction from the previous 222K. 
  • Market expectations for rate cuts have seen fluctuations after the CPI data release.
  • Odds of a cut in June plummeted toward 20% following March’s inflation data on Wednesday.
  • US Treasury bond yields continued rising. The 2-year yield was the only one that declined to 4.95%, while the 5 and 10-year yields rose to 4.62% and 4.58%, respectively. 

DXY technical analysis: DXY continues rising as bullish momentum pushes further

The technical indicators on the daily chart reflect a bullish momentum for the DXY. The Relative Strength Index (RSI), following a positive slope in positive territory, suggests the presence of underlying buying momentum. In addition, the Moving Average Convergence Divergence (MACD) seems to corroborate this bullish outlook. It shows rising green bars, adding conviction to the market's bullish sentiment. 

A glance at the Simple Moving Averages (SMAs) reveals a similar story as the DXY is firmly seated above the key 20, 100 and 200-day SMAs. This positioning suggests that the current trend is bullish with the bulls having the upper hand.

 

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.
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