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US Dollar rises to multi-week highs ahead of key US data


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  • The US Dollar gathers strength against its rivals to start the month of August.
  • The US Dollar Index touched its highest level since early July above 102.00.
  • US jobs report and other high-tier data releases this week could drive USD performance.

Following Monday’s relatively quiet action in financial markets, the US Dollar started to gather strength against its major rivals on the first trading day of August. The USD Index – which tracks the USD’s valuation against a basket of six major currencies – climbed to its highest level in three weeks above 102.00 in the European session.

The US economic docket will feature June JOLTS Job Openings data and the ISM Manufacturing PMI for July on Tuesday, Later in the week, ADP private sector employment Nonfarm Payrolls data will be watched closely by market participants, who are yet to decide whether to price in one more Federal Reserve (Fed) rate hike this year.

Daily digest market movers: US Dollar awaits data releases

  • “Banks reported that, on balance, levels of standards are currently on the tighter end of the range for all loan categories. Compared with the July 2022 survey, banks reported tighter levels of standards in every loan category,” the Fed said in the July 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS).
  • Wall Street’s main indexes registered small gains on Monday. US stock index futures trade in negative territory in the European session on Tuesday.
  • The data from China showed that the business activity in the manufacturing sector contracted in July, with the Caixin Manufacturing PMI declining to 49.2 from 50.5 in July.
  • The ISM reported on Monday that the Chicago PMI improved to 42.8 in July from 41.5 in June. 
  • The Federal Reserve Bank of Dallas’ Texas Manufacturing Survey revealed that the headline Manufacturing Business Index edged higher to -20 in July from -23.2 in June.
  • Inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, fell to 3% on a yearly basis in June from 3.8% in May, the US Bureau of Economic Analysis reported on Friday. This reading came in below the market expectation of 3.1%.
  • Core PCE Price Index, the Federal Reserve’s preferred gauge of inflation, arrived at 4.1% on a yearly basis, down from 4.6% in May and below the market forecast of 4.2%. Further details of the publication revealed that Personal Income and Personal Spending increased 0.3% and 0.5% on a monthly basis, respectively.
  • The real Gross Domestic Product (GDP) of the US expanded at an annualized rate of 2.4% in the second quarter, the US Bureau of Economic Analysis’ (BEA) first estimate showed on Thursday. This reading followed the 2% growth recorded in the first quarter and surpassed the market expectation of 1.8% by a wide margin.
  • According to the CME Group FedWatch Tool, markets are pricing in a 20% probability of a 25-basis-point Federal Reserve (Fed) rate hike in September.
  • The benchmark 10-year US Treasury bond continues to fluctuate in a tight channel below 4%. 
  • In an interview with CBS over the weekend, Minneapolis Federal Reserve Bank President Neel Kashkari said that he was not sure whether the Fed was done raising rates. Commenting on the jobs markets, Kashkari noted that it would not surprise him to see the unemployment rate tick up slightly.
  • The Fed raised its policy rate by 25 basis points (bps) to the range of 5.25%-5.5% following the July policy meeting as expected. In the post-meeting press conference, Fed Chairman Jerome Powell refrained from confirming another rate hike this year and said that every policy meeting will be live. “If we see inflation coming down credibly, we can move down to a neutral level and then below neutral at some point,” Powell told reporters, noting that the policy was already restrictive. 

Technical analysis: US Dollar Index rises toward key resistance

The US Dollar Index (DXY) holds above 102.00 (psychological level, static level) and the Relative Strength Index (RSI) indicator on the daily chart edges higher toward 60 early Tuesday, reflecting a buildup of bullish momentum.

DXY faces next resistance at 102.50 (50-day SMA, 100-day SMA). A daily close above the latter could attract buyers and pave the way for an extended uptrend toward 103.00 (psychological level, static level) and 103.70 (200-day Simple Moving Average).

Looking south, sellers could show interest if DXY fails to hold above 102.00. In that case, 101.30 (20-day SMA) could be seen as next bearish target before 101.00 (psychological level, static level) and 100.50 (static level).

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.