منبع: https://www.fxstreet.com/news/us-dollar-declines-ahead-of-september-inflation-figures-fed-speakers-202310101716
The US Dollar (USD) measured by the US Dollar DXY Index trades with losses despite US Treasury yields recovering and a cautious market mood amid the Middle East geopolitical conflict between Israel and the Hamas terrorist group. Investor’s focus is set on Wednesday’s Federal Open Market Committee (FOMC) from the September meeting and the Consumer Price Index (CPI) from the same month.
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.
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.
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.
In the meantime, the United States economy still shows signs of not cooling down as September’s Nonfarm Payrolls (NFP) showed that job creation accelerated while unemployment rose and wage inflation declined. In addition, Manufacturing PMIs came in better than expected and contributed to investors placing hawkish bets on the Federal Reserve (Fed), which took the DXY index to multi-month highs above 107.00. For the rest of the session, investors will look for clues on the next Federal Reserve (Fed) movements on the Christopher Waller and Neel Kashkari speeches later in the session.
Daily Digest Market Movers: US Dollar consolidates last week’s rally; resilient US economy and Middle East geopolitical tensions could reignite its bullish momentum
- The US Dollar DXY index continues consolidating and declining towards 105.70, tallying more than 1% losses in October after peaking at 107.35.
- September Nonfarm Payroll (NFP) came in at 336,000, higher than the 170,000 expected and the previous 270,000. Unemployment rose to 3.8%, and Average Hourly Earnings decelerated to 4.2%.
- US S&P Manufacturing PMI from September came in at 49.2, higher than the expected previous 48.9.
- The ISM Manufacturing PMI rose to 49 vs the expected 47.7 and the previous 47.6.
- All in all, economic activity is showing resilience, and as the labour market is not cooling down, the Federal Reserve Officials (Fed) may consider one more rate hike.
- On Monday, Lorie Logan from the Fed stated that higher bond yields and restrictive financial conditions would mean “less need” for the central bank to continue hiking.
- Christopher Waller and Neel Kashkari from the Fed will be on the wires later in the session, where investors will look for clues regarding forward guidance.
- The minutes from September’s meeting of the Federal Open Market Committee (FOMC) are due on Wednesday, and the Consumer Price Index (CPI) figures from the same month are due on Thursday.
Technical analysis: US Dollar Index slides to 105.70 below the 20-day SMA
US Dollar FAQs
The US Dollar Index DXY sees a neutral-to-bearish technical outlook for the short term. The Relative Strength Index (RSI) displays a negative slope near the 50 middle-point while the Moving Average Convergence Divergence (MACD) stands in negative territory, indicating that the bears hold the upper hand in the short term.
That being said, the index is comfortably above the 100 and 200-day Simple Moving Averages (SMA), indicating that the bulls command the broader scale. If they fail to defend the 20-day average at 105.90, more downside may be on the horizon, with support lining up at 105.50, 105.30 and 105.00.
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- US Dollar continues consolidating early October gains.
- Inflation in the United States is expected to have decelerated in September.
- Christopher Waller and Neel Kashkari will be on the wires.
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.