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US Dollar stays resilient, gloomy demand outlook weighs on oil prices


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  • US Dollar holds its ground against its major rivals in the second half of the week.
  • Crude oil prices slide on worsening demand outlook, stronger USD.
  • USD could react to macroeconomic data releases from the United States in the American session.

The US Dollar (USD) keeps its footing following Wednesday’s modest rebound as investors continue to stay away from risk-sensitive assets. Meanwhile, the renewed USD strength and growing concerns over a worsening demand outlook drag crude oil prices lower. Signs of sticky inflation in major economies remind market participants that central banks could cling to tight monetary policies at the cost of a slowdown in activity.

The US Dollar Index, which tracks the USD performance against a basket of six major currencies, stays in a tight range near 102.00 on Thursday. On a weekly basis, the index stays in positive territory, looking to snap a five-week losing streak. 

Daily digest market movers: US Dollar Index stays quiet ahead of US macroeconomic data

  • The US Department of Labor will release the weekly Initial Jobless Claims data on Thursday, which is forecast to tick up to 240,000.
  • March Existing Home Sales and the Federal Reserve Bank of Philadelphia’s Manufacturing Survey will also be featured in the US economic docket. 
  • Stronger-than-expected Consumer Price Index (CPI) data from the UK revived fears over sticky global inflation and triggered a rally in global bond yields.
  • The benchmark 10-year US Treasury bond yield turned north early Wednesday and climbed to its highest level in nearly a month above 3.6% before going into a consolidation phase slightly below that level on Thursday.
  • Crude oil prices fell sharply on Wednesday and the barrel of West Texas Intermediate lost more than 2%. WTI stays under selling pressure and trades at its lowest level in over two weeks below $78.
  • The Federal Reserve’s Beige Book showed late Wednesday that manufacturing activity was widely reported as flat or down even as supply chains continued to improve. “Overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing,” the publication further read.
  • “After the failure of two large regional Fed banks last month roiled the financial sector, I’m waiting to see whether there are other credit shoes to drop,” said Chicago Federal Reserve Bank President Austan Goolsbee in an interview with American Public Media’s Marketplace on Wednesday.
  • NY Fed President John Williams reiterated that it was too early to assess the economic impact of tighter credit conditions and added that they need to continue to use policy tools to restore price stability.  
  • St. Louis Federal Reserve President James Bullard told Reuters on Tuesday that interest rates will need to continue to rise in the absence of clear progress on inflation. Bullard further noted that he is still seeing the “adequately restrictive policy rate” at 5.50%-5.75% range and added that is biased to hold rates there for longer until inflation is contained.
  • Housing Starts in the US declined by 0.8% on a monthly basis in March following February’s increase of 7.3% (revised from 9.8%). In the same period, Building Permits decreased by 8.8%, compared to the market expectation of +1.45%. 
  • The data from China showed on Tuesday that the world’s second-largest economy expanded by an annualized rate of 4.5% in the first quarter, much stronger than the 2.9% growth recorded in the last quarter of 2022. This reading also came in better than analysts’ estimate for an expansion of 4%. Other data revealed that Industrial Production expanded by 3.9% and Retail Sales rose by 10.6% on a yearly basis, compared to analysts’ estimate of 7.4%.
  • Richmond Fed President Thomas Barkin said on Monday that he wants to see more evidence of inflation settling back to target.

Technical analysis: US Dollar Index is yet to turn technically bullish

The US Dollar Index trades slightly below the 20-day Simple Moving Average (SMA), currently located at 102.20. In case the DXY closes the day above that level, it could target 103.00 (static level, psychological level) and 103.50 (50-day SMA, 100-day SMA). 

Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart moves sideways near 50, suggesting that sellers refrain from committing to further USD weakness. 

On the downside, 101.50 (static level) align as interim support ahead of 101.00/100.80 (psychological level, static level, multi-month low set on April 14). A daily close below that support area could open the door for an extended slide toward 100.00 (psychological level). 

US Dollar FAQs

What is the US Dollar?

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.

How do the decisions of the Federal Reserve impact the US Dollar?

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.

What is Quantitative Easing and how does it influence the US 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 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.

What is Quantitative Tightening and how does it influence the 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.