US Dollar trades steady after sharp retreat seen last week
- The US Dollar trades flat on Monday as the economic calendar takes a quieter turn.
- The Greenback is firmly up against the Chinese Yuan and the Japanese Yen this Monday.
- The US Dollar Index trades near 105.00 and could extend its recovery after its slide on Friday.
The US Dollar (USD) is giving traders some room to digest the recent headlines that came in after the turmoil in Friday’s trading. The US Jobs Reports missed estimates, although the data was not bad either as the Nonfarm Payrolls Change and the Unemployment Rate suggested still good labor market conditions. The week ahead will be light in terms of economic data releases, but Federal Reserve speakers will return to the stage and their interest-rate outlook has the potential to move the needle for the US Dollar.
On Monday, the Fed will publish the Senior Loan Officer Survey (SLOOS), in which the central bank looks at 80 large domestic banks and 24 branches of international banks to measure current credit and lending conditions. The report can impact decisions on setting interest rates and discount rates. Ahead of the SLOOS release, Federal Reserve Bank of New York President John Williams will speak at a Q&A session in California and Federal Reserve Bank of Richmond Thomas Barkin will also take the stage.
Daily digest market movers: Monday snooze
- Both the Japanese Yen and the Chinese Yuan are depreciating nearly 0.50% on the day against the Greenback.
- Over the weekend, Israel’s Prime Minister Benjamin Netanyahu said Israel is open to a ceasefire to exchange hostages, although he pushed against the request from Hamas to make it a lasting ceasefire, Bloomberg reports. Meanwhile, several world leaders came out condemning Israel’s recent attacks on Rafah, where several civilians have fled to, away from other attacked cities in the region.
- The US Treasury is heading to markets again, to auction a 3-month and a 6-month bill near 15:.30 GMT.
- Around 17:00 GMT, Federal Reserve Bank of New York President John Williams will speak at a Q&A session in California. Broadly at the same time, Richmond Fed President Thomas Barkin will also deliver a speech.
- The Fed will release its recent finding from the Senior Loan Officer Survey (SLOOS) at around 18:00 GMT.
- Asian equities are on the green, , with the Shanghai-Shenzhen CSI 300 up over 1.5%. European indices and US equity futures are taking over the positive spirit with a small 0.50% uptick on average.
- The CME Fedwatch Tool suggests a 91.8% probability that June will still see no change to the Federal Reserve's fed fund rate. Odds of a rate cut in July are also out of the cards, while for September the tool shows a 49.9% chance that rates will be 25 basis points lower than current levels.
- The benchmark 10-year US Treasury Note trades around 4.51% and fell out of bed earlier in the Asian-Pacific (APAC) session, sliding to 4.44%.
US Dollar Index Technical Analysis: 60 billion bill
The US Dollar Index (DXY) had a rough ride last week with US Dollar bulls being steamrolled twice by the Japanese government’s intervention in the USD/JPY pair. Although a near $60 billion in cash got burned, according to Bloomberg, to get USD/JPY from 160.00 to 151.86, it brought the US Dollar Index to the 55-day Simple Moving Average (SMA) at 104.52. This is the level where Dollar bulls were eager to get in and triggered a firm bounce in both the DXY and the USD/JPY pair, with room for further recovery.
On the upside, 105.52 (a pivotal level since April 11, 2024) needs to be recovered first through a daily close above this level before targeting the April 16 high at 106.52 for a third time. 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 55-day and the 200-day Simple Moving Averages (SMAs) at 104.52 and 104.23, respectively should provide ample support. If those levels are unable to hold, the 100-day SMA near 103.86 is the next best candidate.
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.
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