US Dollar trades in red following Powell’s speech, ADP data
- JOLTs Job Openings data for January disclosed lower-than-expected figures.
- ADP Employment Change for February also came in weak.
- Powell confirms that the Fed needs additional evidence to start cutting.
The US Dollar Index (DXY), trading at the 103.20 level, is experiencing losses on Wednesday. Contributing to these dynamics is the report of soft January’s JOLTs Job Quits and Job Openings reports, along with the ADP Employment Change report for February. Following the testimony before the US Congress, Federal Reserve (Fed) Chair Jerome Powell confirmed that the bank isn’t ready to start cutting rates.
The US labor market data coming on Thursday and Friday will continue shaping the expectations on the Fed’s timing of the easing cycle. As for now, the consensus is that the first cut will likely come in June.
Daily digest market movers: DXY trades lower, anchored by soft labor market data
- JOLTs Job Openings for January turned out to be 8.863M, which was marginally below the expected 8.9M but was virtually identical to December’s figure of 8.889M.
- ADP Employment Change for February displayed an actual increase of 140K jobs but came in below the forecast 150K growth.
- Before Congress, Powell stated that he would like to have more confidence in inflation coming down and that with “a little bit more of data”, the bank would likely be confident to start cutting.
- US Treasury bond yields continue to decline, with the 2-year yield at 4.52%, the 5-year yield at 4.08%, and the 10-year yield at 4.09%.
- On Thursday, markets will monitor weekly Jobless Claims figures, and on Friday, Nonfarm Payroll data from February.
DXY technical analysis: DXY under bearish pressure, bulls fail to recover 200-day SMA
The technical situation reflects the bears gaining ground. The indicator readings on the daily chart show the Relative Strength Index (RSI) maintaining a negative slope and existing in negative territory. Looking at the histogram of the Moving Average Convergence Divergence (MACD), its rising red bars further underline this bearish scenario. This trend is an indicator not only of the selling pressure but also of its increasing strength.
Assessing the DXY’s position in relation to its Simple Moving Averages (SMAs), the DXY is positioned below the 20, 100 and 200-day SMAs. From an overall technical standpoint, this is typically a quite bearish indication, providing further evidence of the dominance of selling pressure at present.
In this light, the short-term technical outlook for DXY appears predominantly bearish, with the selling momentum seemingly overriding the buying momentum.
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.