USA Dollar

US Dollar drifts higher ahead of US PPI, Retail Sales data



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  • The US Dollar trades in the green after weaker Yuan fixing, shifting ECB rate cut bets.. 
  • Traders brace for big US data release at 12:30 GMT. 
  • The US Dollar Index traders near 103.00, aiming to snap above this key level. 

The US Dollar (USD) trades in the green on Thursday ahead of the release of US Retail Sales and Producer Price Index (PPI) numbers, and the weekly Jobless Claims. Two drivers seem to be supporting the USD: Firstly, the People’s Bank of China (PBoC) set a substantial weaker Yuan fixing against the Greenback for the first time in months. Secondly, European Central Bank (ECB) members are nearly rolling over the floor fighting over when is the right time for the initial rate cut from the ECB. Views that the ECB could precede the Fed in cutting rates weigh on the Euro, helping the DXY USD Index advance.

On the economic data front, a wave of data is set to be released at 12:30 GMT. The main component is the monthly Retail Sales print for February, which are expected to jump by 0.8% after contracting by a similar magnitude in January. Next to that, the Headline and Core Producer Price Index (PPI) numbers for February are expected to show the recent disinflationary path persisted. 

Daily digest market movers: Hit or miss on the data

  • A big list of data to be expected at 12:30 GMT:
    • Weekly  Jobless Claims:
      • Initial Claims are expected to head from 217,000 to 218,000.
      • Continuing Claims are seen heading from 1.906 million to 1.900 million.
    • US Retail Sales for February:
      • Monthly Retail Sales are expected to swing from a 0.8% decline to a 0.8% growth.
      • Monthly Retail Sales without Cars and Transportation are also expected to rebound from a 0.6% fall to a 0.5% rise.
      • Revisions could also trigger a substantial move in the Greenback. 
    • US Producer Price Index (PPI) for February:
      • The monthly Headline PPI is expected to remain stable at 0.3%.
      • The Yearly Headline PPI expected to head from 0.9% to 1.1%.
      • The monthly Core PPI is expected to decline from 0.5% to 0.2%.
      • The Yearly Core PPI is set to decline as well, from 2.0% to 1.9%.
  • The January Business Inventories data are due to be released around 14:00 GMT. Inventories growth is expected to decline from 0.4% to 0.2%.
  • Equities are in the green after the US equities were able to eke out gains right at the end of the trading day on Wednesday after spending most of the day in the red. Asia is set to close mildly in the green, while European equities are broadly up by less than 0.50%.
  • According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 99%, while chances of a rate cut stand at 1%. 
  • The benchmark 10-year US Treasury Note trades around 4.20%, the highest level for this week

US Dollar Index Technical Analysis: Second times the charm

The US Dollar Index (DXY) is heading back towards 103.00 for a second attempt after it failed to stay above it earlier this week during the Consumer Price Index (CPI) release on Tuesday. Seeing that external factors this Thursday have brought the Greenback back to this area makes it rather questionable if the data release this afternoon will be enough for the DXY to breach the 103-barrier. Overall it looks that traders are keeping most of their powder dry ahead of the US Federal Reserve rate decision next week.

On the upside, the first reclaiming ground is at 103.38, the 55-day SMA. Not far above, a double barrier is set to hit with the  100-day SMA near 103.68 and the 200-day SMA near 103.70. Depending on the catalyst that pushes the DXY upwards, 104.96 remains the key level on the topside. 

The DXY was unable to even test or challenge the 55-day SMA after the CPI print. More downside looks inevitable with 102.00 up next, which bears some pivotal relevance. Once through there, the road is open for another leg lower to 100.61, the low of 2023.

 

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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