- The Greenback tries to continue Friday’s recovery start.
- Equities are plunging over 3% to 5% lower on average across the globe, Hang Seng even down 13%.
- The US Dollar Index trades near 103.00 and sees a technical rejection still play out.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, sets forth Friday’s recovery towards 103.00 at the time of writing on Monday after an earliest move lower. Markets were selling the US Dollar again as Equities, Yields and precious metals dropped lower. The concern comes after US President Donald Trump said over the weekend that he will be sticking to his tariffs plan, while financial backer and billionaire Bill Ackman warned the President that he is losing business leaders’ confidence.
On the economic front, all eyes will be on the US Consumer Price Index (CPI) data this week. The March inflation gauge will be the first release where some impact from the Trump administration might already be expected. In several weekly summaries issued on social media, the White House proclaims that Trump has successfully lowered prices on all food items, such as eggs or petrol at the pump. This can be seen and proven by the upcoming CPI release on Thursday.
Daily digest market movers: Some small auctions
- At 15:30 GMT, the US Treasury will launch a 3-month and a 6-month bill.
- Founder and chief executive officer (CEO) of Pershing Square Capital Management William Albert Ackman asked President Trump on the social media platform X to pause the current trade tariffs in order to first broker a trade deal. Ackman warns that Trump is losing business leaders’ confidence, Reuters reports. Ackman is considered as one of his most significant financial contributors in both terms.
- Red numbers not been seen for a long time in the Equity markets, with the Chinese Hang Seng closing off at -13%, European indexes facing on average more than 6% drops, and US futures trying to salvage the situation by only correcting around 3%.
- The CME FedWatch tool sees chances for an interest rate cut by the Federal Reserve (Fed) in May standing at 46.2%, shooting up from 33.3% on Friday as rate cut bets grow. For June, a rates-remaining-steady scenario is out of the options. Only rate cuts are being penciled in with a 53.5% chance of policy rate being cut to the 3.75%-4.00% range from the current 4.25%-4.50%.
- The US 10-year yields trade around 3.98%, off its fresh five-month low at 3.85%. The next low to be considered comes in at 3.69%, last seen at the beginning of October 2024.
US Dollar Index Technical Analysis: Still there
A firm technical rejection unfolded in the DXY index at the start of the week in early Monday. The recovery on Friday could not cross back to the 103.18 pivotal level. Unfortunately, that is where the recovery stopped, meaning that 103.18 on is a level which US Dollar bears are heavily defending.
The first level to watch out for is thus 103.18, which was held as support throughout March and triggered a technical rejection on Friday. Above there, the 104.00 round level and the 200-day Simple Moving Average (SMA) at 104.87 come into play.
On the downside, 101.90 is the first line of defense and it should be able to trigger a bounce as it has been able to hold the last two trading days. Maybe not on Monday, but in the coming days, a break below 101.90 could see a leg lower towards 100.00.
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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