- The US Dollar snaps recovery and retreats against most major peers.
- The Greenback sees earlier gains evaporate in recession fears emerging again ahead of US jobless data.
- The US Dollar index trades back below 103.00 in technical rejection.
The US Dollar (USD) eases across the board against nearly all major peers in what turns out to be a nervous Thursday. Markets are trembling in the run-up to the weekly US Jobless Claims data, which will be released later in the day. It was this same data point that sparked the volatile patch last week ahead of the US Jobs reports and resulted in the massive sell-off on Monday across all asset classes.
On the economic data front, there is a very light calendar ahead. Because of this very calm trading week in terms of economic data, the weekly Initial Jobless Claims print for the week ending on August 2 will gain importance in magnitude. Thus, expect a rough ride later this Thursday on the back of the Jobless Claims data.
Daily digest market movers: Where it all started
- Former US President Donald Trump will hold a press conference at Mar-a-Lago later this Thursday.
- The economic calendar kicks off at 12:30 GMT with, straight away, the main event being presented: The weekly Jobless Claims
- Initial Claims for the week ending August 2 are expected to head to 240,000 from 249,000.
- Continuing Claims were at 1,877,000. No forecast for the week ending July 26 is pencilled in.
- At 14:00 GMT, Wholesale Inventories data for June is expected to grow by 0.2%, at the same pace as the previous month.
- At 17:00 GMT, the US Treasury will auction a 30-year bond.
- Equity markets are losing steam, with nearly all European incidences in the red. US futures are down as well, though slightly.
- The CME Fedwatch Tool shows a 72.5% chance of a 50 basis points (bps) interest rate cut by the Federal Reserve (Fed) in September. Another 25 bps cut is expected in November by 55.6%, while a 27.2% chance for a 50 bps cut and 17.2% for no cut are being pencilled in for that meeting.
- The US 10-year benchmark rate trades at 3.91%, retreating from this week’s high at 3.98%.
US Dollar Index Technical Analysis: Nervous breakdown
The US Dollar Index (DXY) is starting to look dangerous, as Dollar bulls cannot get that daily close above 103.18. This Thursday’s decline can be seen as a firm rejection which could result in another leg lower. If the Jobless Claims report this Thursday turns ugly again, a nosedive to 101.00 could not be unthinkable.
Still the first point to recover and gain importance every day is that 103.18, a level held on Friday though snapped on Monday in the Asian hours, is being tested. Once the DXY closes above that level, next up is 104.00, which was the support from June. If the DXY can make its way back above that level, the 200-day Simple Moving Average (SMA) at 104.17 is the next resistance level to look out for.
On the downside, the oversold condition in the Relative Strength Index (RSI) indicator has eased in the daily chart and holds room again for a small leg lower. Support nearby is the March 8 low at 102.35. Once through there, pressure will start to build on 102.00 as a big psychological figure before testing 101.90, which was a pivotal level in December 2023 and January 2024.
US Dollar Index: Daily Chart
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.
