- The US dollar continues to retreat from its peak on Monday.
- Traders are backing the Fed’s spokeswoman on a very small economic calendar ahead this Wednesday.
- US dollar index dips below 104 in search of support.
The US dollar (USD) is flat for the week, leaning towards negative performance ahead of the opening bell in the US. The effects of an upbeat U.S. jobs report and geopolitical tensions — along with talks about a cease-fire in the Gaza region — are starting to favor the dollar bill. Hamas has drawn up a plan for a 135-day ceasefire in three phases, which is now being discussed by all parties.
On the economic front, traders see some confirmation for the weakening of the US dollar after Minneapolis Federal Reserve Bank member Neill Kashkari said three rate cuts are in order this year. Three more members of the US central bank (Fed) are scheduled to speak later this Wednesday, which could move the dial. These speakers are: Adriana Kruger, a member of the Board of Governors, who will speak at around 16:00 GMT, Thomas Barking from Richmond Fed, around 5:30 p.m., and Michelle Bowman, who, like Kruger, is also a member of the Board of Governors. He is due to speak around 19:00 GMT.
Daily overview of market movements: Lecturer
- At 12:00 GMT the weekly Mortgage Banker Requests were released. The previous one saw a decline of 7.2%, this week a rise of 3.7%.
- US Goods and Trade Balance numbers are expected around 1:30 p.m.:
- The balance of trade in goods and services for December fell from a revised -$61.9 billion (previously -$63.2 billion) to -$62.2 billion.
- The goods trade balance showed a deficit of $88.5 billion in the previous report and reached -$89.1 billion in December.
- Minneapolis Fed member Kashkari said two to three rate cuts are appropriate for this year.
- As mentioned a few paragraphs above, no less than three Fed speakers will hit the wire today, the Fed’s Kruger, Barking and Bowman.
- Around 6:00 p.m., the US Treasury will allocate the ever-important 10-year bond to the market.
- Stock markets show no signs of letting go of this bull run. Earlier losses in US stock futures had already been pared with all three major futures trading in the green ahead of the US open.
- CME Group’s FedWatch Tool is now looking at the March 20 meeting. Expectations for a pause are 78.5%, while 21.5% rate cuts.
- Benchmark 10-year US Treasuries are trading near 4.11%, off Monday’s high of around 4.17%.
US Dollar Index Technical Analysis: Fed tries to steer markets
The US dollar index (DXY) appears to be catching its breath after its gains on Friday and Monday. The Greenback appears to be on its way to being declared the King of the Dollar once again, although there are no real challenges posted that could see the DXY jump back to 107. For now, it looks like balance can be found as the DXY pulls back and looks for support .
Should be American dollar The index has moved higher again, first look for a test of Monday’s high near 104.60. This level needs to be broken and is more important than the 100-day simple moving average at 104.30. After breaking this Monday high, the way is open for a jump to 105 with 105.12 as a key level to watch.
The 100-day SMA is clearly an unreliable friend in a rally at the moment. A false break on Monday and no support provided on Tuesday from the moving average opens the door for a push lower. The first ideal candidate for support is the 200-day SMA near 103.59. Should it pull back, look for support from the 55-day SMA near 103 itself.
Frequently asked questions about the Fed
Monetary policy in the US is shaped by the Federal Reserve System (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its primary tool to achieve these goals is the adjustment of interest rates.
When prices rise too fast and inflation is above the Fed’s 2% target, it raises interest rates, which raises borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the unemployment rate is too high, the Fed can cut interest rates to encourage lending, which weighs on the dollar.
The Federal Reserve (Fed) holds eight policy meetings a year at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is comprised of twelve Fed officials—seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional reserve bank presidents who serve one-year terms on a rotating basis. .
In extreme situations, the Federal Reserve can resort to quantitative easing (QE) policy. QE is the process by which the Fed substantially increases the flow of credit in a troubled financial system.
It is a non-standard policy measure used during crises or extremely low inflation. It was the Fed’s weapon during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of QE, where the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of bonds it holds maturing into buying new bonds. It is usually positive for the value of the US dollar.