- The US dollar is struggling to regain strength, but losses have been limited so far.
- Key macroeconomic data out of the US this week could boost US dollar valuations.
- The US Dollar Index remains technically bearish in the short term.
The US dollar (USD) failed to benefit from Friday’s better-than-expected S&P Global PMI survey, with the US dollar index ending the week virtually unchanged. At the start of the new week, the US dollar is under moderate selling pressure against its rivals. Investors bet on further US dollar weakness ahead of key macroeconomic data to be released later this week, including Q1 Gross Domestic Product (GDP) and his April Personal Consumption Expenditures (PCE) price index. may refrain from
The US Dollar Index, which tracks the US dollar’s performance against a basket of six major currencies, is slightly above 101.50 and down slightly.
Daily Digest Market Moves: US Dollar Remains Directionless for Now
- Data out of the United States revealed on Friday that private sector economic activity expanded at an enhanced pace in April, with the S&P Global Composite PMI rising to 53.5 (flash) from 52.3 in March.
- Over the same period, the S&P Global Manufacturing PMI improved to 50.4 from 49.2, while the Services PMI rose to 53.7, beating analyst expectations of 51.5.
- Chris Williamson, chief business economist at S&P Global Market Intelligence, said of the data, “The latest survey shows business activity has regained growth momentum after a seven-month contraction through January. I am adding a sign.
- Wall Street’s main indexes were mixed on Monday. At press time, the S&P 500 was down his 0.15%, while the Dow Jones Industrial Average was up his 0.1%.
- US 10-year Treasury yields remain negative, but remain above 3.5%.
- The Federal Reserve Bank of Chicago announced that March’s National Activity Index remained unchanged at -0.19. This reading was weaker than the market expected of -0.02, but failed to provoke any noticeable market reaction.
- The Dallas Federal Reserve will release its April Texas Manufacturing Survey later in the session.
- CME Group’s FedWatch tool shows the market is now pricing in a nearly 90% chance that the Federal Reserve (Fed) will raise rates by another 25 basis points at its next meeting.
- The Fed will enter a blackout period until a policy decision is announced next week on May 3rd.
- The US Bureau of Economic Analysis will release its first estimates of first-quarter GDP growth on Thursday. The U.S. economy is projected to expand at an annualized rate of 2% in the first quarter of 2022, up from a recorded 2.6% in the fourth quarter of 2022.
Technical reasons why: US Dollar Index struggles to gain traction
The US Dollar Index is currently trading just below the 20-day Simple Moving Average (SMA) at 102.00. If the DXY closes above that level, we can target 103.00 (static level, psychological level) and 103.40 (50-day SMA, 100-day SMA).
On the other hand, the Relative Strength Index (RSI) indicator on the daily chart is slightly sideways below 50, suggesting that buyers are reluctant to bet on a steady recovery in the DXY.
On the downside, 101.50 (static level) lines up as tentative support ahead of 101.00/100.80 (psychic level, static level, multi-month low set on April 14th). A daily close below that support area could open the door to an extended slide towards 100.00 (the psychological level).
US Dollar FAQ
What is US Dollar?
The United States Dollar (USD) is the official currency of the United States and the “de facto” currency of many other countries, circulating alongside local currencies. It is the world’s most-traded currency, accounting for over 88% of global forex trading volume, or an average of $6.6 trillion traded per day. data From 2022.
After World War II, the US dollar 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 1971 Bretton Woods Accords, when the gold standard was abolished.
How will the Federal Reserve Board’s decision affect the US dollar?
The single most important factor affecting the value of the US dollar is the monetary policy shaped by the Federal Reserve (Fed). The Fed has two missions: to achieve price stability (control inflation) and to promote full employment. A key tool for achieving these two goals is to adjust interest rates.
If prices rise rapidly and inflation exceeds the Fed’s 2% target, the Fed will raise interest rates and make the US dollar more valuable. If inflation drops below 2% or unemployment is too high, the Fed could cut interest rates, which weighs on the dollar.
What is quantitative easing and how will it affect the US dollar?
In extreme circumstances, the Federal Reserve could even print more dollars and enact quantitative easing (QE). QE is the process by which the Fed significantly increases the flow of credit in a distressed financial system.
This is a non-standard policy instrument used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It’s a last resort when simply lowering interest rates doesn’t get the results you want. This was the Fed’s weapon of choice to combat the credit crunch that occurred during the 2008 global financial crisis. It involves the Fed printing more dollars and using it to buy US Treasuries, mostly from financial institutions. Quantitative easing usually leads to a weaker US dollar.
What is quantitative tightening and how will it affect the US dollar?
Quantitative Tightening (QT) is the reverse process in which the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of its holdings in new purchases. Usually positive against the US dollar.
