US Dollar marks pivotal week for 2024 with biggest gain for year-to-date

  • The US Dollar locks in gains for this Friday and this week, trading at the strongest level since early-November.  
  • Traders are pushing the Greenback higher while markets are diving the forex markets in two camps with weaker-for-longer and stronger-for-longer currencies
  • The US Dollar Index rallies towards 106.00.

The US Dollar (USD) carries on to strengthen on Friday and is set for the best week this year so far, snapping out of the tight bandwidth it had traded this 2024. Investors don’t seem to be taking profits despite the recent rally,  which could mean that more US Dollar strength is on the cards for next week. The main driver for the move is the breakdown in European bonds, with yields sinking against very steady ones in the US, as the rate differential between both sides of the Atlantic expands. 

On the economic data front, traders are starting to applaud good data under the label of US exceptionalism. Equities could well be set to rally as well despite higher interest rates, buying the idea that there is no landing taking place in the economy and that the current level of high rates is even good to keep it from overheating.  The University of Michigan numbers this afternoon could build up a case further for the above narrative.

Daily digest market movers: ECB delivers kill shot for Euro

  • Several European Central Bank members came out this morning with overall a similar message that cuts need to take place now and June is a guarantee. This triggered already over 0.70% of losses for the Euro against the Greenback. The Euro acocunts for a near 57% of weighting in the US Dollar Index (DXY).
  • The Import and Export Price Indexes data for March is due 12:30 GMT:  
    • The monthly Export Price Index is expected to increase 0.3%, down from  0.8% a month earlier. . 
    • The monthly Import Price Index is expected to grow 0.3%, steady from the previous month. 
  • The University of Michigan preliminary numbers for April will be released at 14:00 GMT:
    • Consumer Sentiment is expected to decline a touch to 79 from 79.4.
    • Inflation expectations were at 2.8% previous, with an uptick expected after the recent Consumer Price Index (CPI) numbers.
  • Three US Federal Reserve Speakers take the stage later on Friday:
    • At 17:00 GMT, Federal Reserve Bank of Kansas City President Jeffrey Schmid will deliver a keynote speech.
    • Around 18:30 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic delivers a speech on the Housing Crisis.
    • Finally, at 19:30 GMT, Federal Reserve Bank of San Francisco President Mary Daly will participate in a debate at a Fintech Conference.
  • European equities are jumping higher, with the inverse correlation in EUR/USD. Both the Dax and Stoxx 50 are up over 1%. US Futures are still looking for direction with hesitant buyers. 
  • The CME FedWatch Tool prices in a 93.4% probability of no changes in the policy rate for May 1. For now, odds are the highest for September 18 with a 44.7% chance of a first rate cut against 28.5% for an unchanged stance.
  • The benchmark 10-year US Treasury Note trades around 4.52%, retreating a touch after hitting 4.59% overnight on Thursday. 

US Dollar Index Technical Analysis: The moment everyone will remember for the rest of 2024

The US Dollar Index (DXY) performance shows that markets are still trembling after this week’s shocks. Hot US price pressures for a third consecutive month are quickly shifting Fed rate cut bets to later this year, breaking the governing dynamics for this year thus far. 

From now on, it becomes clear that whichever central bank – and accordingly the currency – needs to start cutting its benchmark rate will face severe punity from markets. On the contrary, central banks keeping rates steadier for longer are likely to be rewarded with a further appreciation in their currency provided that their economy is robust despite the current high rate regimes. The pack is being split in half: while weaker economies are set to get their currencies exposed, stronger ones are expected to rally further. 

On the upside, the first level for the DXY is the November 10 high at 106.01, just above the 106.00 figure. Further up and above the 107.00 round level, the DXY Index could meet resistance at 107.35, the October 3 high. 

On the downside, fresh support levels need to be pencilled in as well, with the first important level at the 105.00 big figure. Further down, 104.60 should also act as a support, ahead of the region with both the 55-day and the 200-day Simple Moving Averages (SMAs) at 103.97 and 103.84, respectively.

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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