- The US Dollar trades steady lower on Thursday despite a slew of key US economic data released.
- Traders see Fed Chairman Powell not commenting on markets.
- The US Dollar Index holds just below 101.00 and could move either way after a volatile Wednesday.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is catching its breath and trades slightly lower just below the 101.00 level at the time of writing on Thursday, ahead of a chunky United States (US) economic calendar. The Greenback is not really moving on the back of the geopolitical defusing by US President Donald Trump, who commented during his Middle Eastern trip that nuclear talks with Iran have good hopes, while both Yemen and Syria deserve a second chance.
After Wednesday’s sharp volatility affecting the Korean Won (KRW), traders are looking to Asia for possible more currency hiccups and evidence that the Trump administration is seeking a currency deal with countries in the region to devalue the Greenback.
Daily digest market movers: Nothing substantial enough
- The US economic calendar kicked off at 12:30 GMT with a string of data:
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- Weekly Initial Jobless Claims came in at 229,000, as expected and from 228,00 in the previous week. The Continuing Claims came in softer at 1.881 million, beating the 1.89 million estimate and from 1.879 million previously.
- The NY Empire State Manufacturing Index for May ionly fell to -9.2, beating the expected -10, from -8.1 the previous month. The Philadelphia Fed Manufacturing Survey for May was a surprise -4, far better than the expected -11 and from -26.4 in April.
- The monthly April headline Producer Price Index contracted by -0.5%, where an increase by 0.2% was expected and from the 0.4% decline in March. The core PPI contracted by -0.4%, missing the 0.3% estimate and compared to -0.1% previously.
- April Retail Sales fell to just 0.1%, a small beat on the 0% estimate and compared to the 1.5% previous release. Retail Sales excluding Cars and Transportation only increased by 0.1%, missing the 0.3% estimate and compared to the 0.5% rise in March. That same 0.5% for March got revised up to 0.8%.
- Federal Reserve Chairman Jerome Powell delivered a speech about the Fed’s framework review at the Thomas Laubach Research Conference in Washington DC. Though the Fed Chairman did not comment on any near-term economic outlook or rate path.
- At 13:15 GMT, the monthly Industrial Production data for April is due. Expectations are for a surge of 0.2% compared to -0.3% in March.
- At 18:05 GMT, Federal Reserve Bank Vice Chair for Supervision Michael Barr will deliver opening remarks (via pre-recorded video) at the 2025 Northeast/Mid-Atlantic Small Business Credit Symposium.
- Equities are slumping across the board on Thursday, though nowhere more than 1% losses to report from Asia, across Europe, and into the US equity futures markets.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in June’s meeting at just 8.2%. Further ahead, the July 30 decision sees odds for rates being lower than current levels at 38.6%.
- The US 10-year yields trade around 4.53%, and keep ticking higher, nearing a one-month high.
US Dollar Index Technical Analysis: Caught between rates and risk
The US Dollar Index saw the pivotal technical level at 100.22 hold firmly, delivering a small bounce for the Greenback on Wednesday. With the slide below 101.00, the DXY looks well-positioned to go either way, driven by the US economic data releases later this Thursday. A return to 101.90 could materialize, while the downside support at 100.22 is not far off.
On the upside, 101.90 is the first big resistance again. It already acted as a pivotal level throughout December 2023 and as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024. In case Dollar bulls push the DXY even higher, the 55-day Simple Moving Average (SMA) at 102.06 comes into play.
On the other hand, the previous resistance at 100.22 is now acting as firm support, followed by the year-to-date low of 97.91 and the pivotal level of 97.73. Further below, a relatively thin technical support comes in at 96.94 before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.
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.
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