US Dollar consolidates gains following JOLTS
- Tuesday’s highlight was the US Bureau of Labor Statistics reporting on strong JOLTs Job Openings figures for February.
- Markets await additional data to guide easing cycle expectations, widely expected to commence in June.
- Events on the horizon this week include Nonfarm Payrolls, Average Hourly Earnings, and Unemployment rate.
The US Dollar Index (DXY) trades at 104.95 with mild losses. The Federal Reserve (Fed) and economic data are giving signals of a solid US economy, which made markets back off on being fully confident of a June rate cut. Labor data this week will continue modeling those expectations.
The US economy remains resilient as the Federal Reserve adopts a cautious approach under the leadership of Powell. Despite forecasts indicating higher inflation, the Fed is avoiding drastic reactions to temporary price spikes. The potential beginning of a monetary easing phase in June is contingent upon future economic data. Several Fed speakers will be on the wires on Tuesday.
Daily digest market movers: DXY loses ground despite strong labor data
- The Bureau of Labor Statistics (BLS) in the US published the Job Openings and Labor Turnover Survey (JOLTS) for February, which showed 8.75M job openings.
- This figure surpassed January's adjusted count of 8.74M and overtook the market expectation of 8.74M.
- As for now, the market foresees a 63% probability of the first 25 bps rate cut in June, which is still contingent on incoming data.
- US Treasury bond yields are mixed on Tuesday with the 2-year yield at 4.70%, indicating slight downward movement. In contrast, 5 and 10-year yields at 4.34% and 4.36%, respectively, show minor increases.
- Nonfarm Payrolls, Average Hourly Earnings, and Unemployment Rate data will dictate the pace of expectations and the US Dollar for the short term.
DXY technical analysis: DXY bulls take a breather but retain control
On the daily chart, the Relative Strength Index (RSI) is on a negative slope, although still in positive territory, implying a possible weakening of buying momentum. This may be a hint that the bulls are taking a breather at this point after driving the index to its highest level since mid-February. The Moving Average Convergence Divergence (MACD) shows decreasing green bars, further indicating that the bullish momentum seems to be losing steam.
Despite showing a negative outlook in the short term, the pair is operating above its 20, 100, and 200-day Simple Moving Averages (SMAs). This suggests that the overall trend remains predominantly bullish.
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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