- No high-level US reports will be published this week.
- Fed officials do not provide any news about the entity's next moves.
- The next notable event will be next Wednesday, when the United States publishes the CPI figures for April.
The US Dollar Index (DXY) is trading at 105, posting slight gains. Market dynamics are currently influenced by the cautious statements of the Chairman of the Federal Reserve (Fed), Jerome Powell, about the unpredictable trajectory of inflation, despite the tendency towards relaxation in recent times. Like Powell, Fed officials signaled concern about persistent inflation despite prolonged tight monetary policies. Unless one of the Fed speakers kicks the table, there will be no big moves this week for the Dollar.
Investors were spooked Friday by the weak labor market report and rushed to bet on an early rate cut. However, the US economy appears to be resilient, and the pace of the USD will be dictated by incoming data.
Daily Market Moves Summary: DXY rises slightly, moderate bets and falling yields may limit upside
- Following the Fed's policy meeting, expectations of Fed easing have fallen, keeping the odds of a June cut around 10%. This indicates that confidence in the strength of the US economy prevails.
- Fed officials align with Fed Chair Jerome Powell's views, projecting a skeptical outlook for any imminent rate cut. Market probabilities suggest various easing possibilities: 10% for a cut in June, 35% for July and 85% for September.
- US Treasury yields fell, with the 2-year yield at 4.80%, the 5-year yield at 4.44% and the 10-year yield at 4.43%, which could limit gains in the USD.
DXY Technical Analysis: DXY presents battle with bears fighting to maintain control
On the daily chart, the positive slope of the RSI indicates the presence of bullish momentum, albeit in negative territory. This suggests that the bears are currently in control, although the buyers are fighting back. The Moving Average Convergence Divergence (MACD) shows a narrowing of the red bars, indicating that sellers are losing steam and momentum could shift to the upside.
Meanwhile, the recent price action on the charts shows bulls working towards recovery. The DXY is trading below the 20-day SMA, indicating recent bearish pressure. However, it remains above the 100-day and 200-day SMAs. This positioning suggests that, despite recent bouts of selling, long-term sentiment remains favorable to further increases.
US Dollar FAQ
What is the US Dollar?
The United States 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 in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions.
After World War II, the USD took over from the pound sterling as the world's reserve currency.
How do the decisions of the Federal Reserve affect the Dollar?
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
What is Quantitative Easing and how does it influence the Dollar?
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 into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of 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 of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
What is quantitative tightening and how does it influence the US dollar?
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
