US Dollar suffers from weak NFPs, hopes of sooner rate cuts rise

Source Fxstreet
May 3, 2024 16:29
  • US Nonfarm Payrolls report from April underperformed, showing a lower-than-expected increase.
  • The odds of a rate cut in September increased, which seems to be applying pressure on the USD.

The US Dollar Index (DXY) is visiting the 105 level with sharp losses at the end of the trading week. This comes after Friday’s report of weak US Nonfarm Payrolls (NFP) figures from April, which made markets dump the USD.

The US economy is exhibiting mixed signs of progression with robust demand and a tight labor market exhibiting slow yet significant wage growth, contributing to inflation. Federal Reserve (Fed) Chair Jerome Powell remains cautious about inflation's uncertain trajectory, emphasizing that restrictive monetary policy has curtailed economic overheating. On Friday, weak labor market figures made markets raise the odds of interest rate cuts in September.

Daily digest market movers: DXY down on weak NFPs

  • US NFP report indicated an increase of 175K jobs in April, lower than the expected 243K, and a decrease from March's revised 315K growth.
  • Unemployment Rate rises from 3.8% to 3.9%.
  • Wage inflation, as shown by Average Hourly Earnings, fell to 3.9% YoY from 4.1%.
  • Market predictions for a Fed rate reduction by September have intensified due to the weak labor market figures.
  • US Treasury bond yields plunged with the 2-year yield at 4.80%, while the 5-year and 10-year yields declined to 4.50% and 4.58%, respectively.

DXY technical analysis: DXY displays an overall bullish bias despite imminent selling pressure

The technical outlook of DXY primarily mirrors a bullish dominance with a lurking bearish comeback. The Relative Strength Index (RSI) records a negative slope in negative territory, hinting at heightened selling momentum by bears. The relentless bearish push has, however, proven insufficient as the pair still trades above the 100 and 200-day Simple Moving Averages (SMAs).

Furthermore, the Moving Average Convergence Divergence (MACD) reports rising red bars, hinting that bears are gaining ground. The bearish signal should be taken seriously as the sellers pushed the index below the 20-day SMA. However, the longer-term SMAs remain as strong supports to defend the overall bullish outlook.

 

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
Copper Long-term forecast: Will Copper Price Expected To Soar In 2023?The price of copper is affected by various of factors. You may wonder how the price of cooper will be in 2023, check out our forecast analysis.
Author  Mitrade
The price of copper is affected by various of factors. You may wonder how the price of cooper will be in 2023, check out our forecast analysis.
placeholder
Understanding the first crypto market crash of 2024 and what to expect nextThe 365-day MVRV ratio suggests that this crash may be just the beginning. If the ETF is rejected before the second quarter of 2024, it could trigger a sharp correction.
Author  FXStreet
The 365-day MVRV ratio suggests that this crash may be just the beginning. If the ETF is rejected before the second quarter of 2024, it could trigger a sharp correction.
placeholder
Japanese Yen stands tall near one-month top against USD on hawkish BoJ talksThe Japanese Yen (JPY) rallied to the highest level since early February against its American counterpart on Friday amid bets for an imminent shift in the Bank of Japan's (BoJ) policy stance.
Author  FXStreet
The Japanese Yen (JPY) rallied to the highest level since early February against its American counterpart on Friday amid bets for an imminent shift in the Bank of Japan's (BoJ) policy stance.
placeholder
Natural Gas faces upside pressure as European traders prepare for next heating seasonNatural Gas (XNG/USD) prices are holding ground above $2.00 on Friday after a brief dip earlier this week. Gas prices are quickly recovering as mainland Europe is gearing up for the next heating season, with traders starting to negotiate contracts in
Author  FXStreet
Natural Gas (XNG/USD) prices are holding ground above $2.00 on Friday after a brief dip earlier this week. Gas prices are quickly recovering as mainland Europe is gearing up for the next heating season, with traders starting to negotiate contracts in
placeholder
Bitcoin Price Takes a Plunge: Analyzing the Sudden DropBitcoin price started another decline after it struggled near $64,550. BTC declined below the $63,500 support and might continue to move down.
Author  NewsBTC
Bitcoin price started another decline after it struggled near $64,550. BTC declined below the $63,500 support and might continue to move down.
goTop
quote