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US Dollar persists as markets turn green after China worries


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  • The US Dollar flat after a risk-off picture start of the week. 
  • China’s economic numbers paint a bleak picture of its post-covid recovery.  
  • US Dollar Index to print fresh monthly high again.

The US Dollar (USD) trades sideways after it continued where it left off Friday evening at the US closing bell. The Greenback-favored sentiment this Monday is built on the once again disappointing numbers out of China. With Country Garden, an even bigger real estate developer than Evergrande, on the brink of collapse, Chinese loan data pointed to an 89% drop in distributed loans to companies and households. The Chinese credit crunch will further deteriorate its economic numbers and growth, threatening world economic growth in a spillover effect. 

There are no important data points for Monday and the rest of the week. On Tuesday, US retail sales numbers will flavor the market, and on Wednesday the latest US Federal Reserve Minutes will be key data for further guidance and clues on where the US Dollar Index (DXY) might move later this week. Without pivotal data points, expect markets to be on autopilot with no real seismic shifts in current trends.

Daily digest: US Dollar steady as she goes

  • Main headlines this Monday are on the Chinese property builder Country Garden., which is on the brink of a default and might need financial aid from the Chinese government.
  • Chinese loan distribution to companies and households dropped 89% for the month of July against June’s numbers. Loans are a vital item in an economy for companies that want to expand and for household consumption. 
  • Forex markets are also gearing up for a shock intervention by the Japanese finance ministry as USD/JPY has hit 145 in early Monday trading. An intervention could see heavy US Dollar selling to get the USD/JPY exchange rate back down to 140 or 135 in a short period. In Japan, it is not the central bank but the finance ministry overseeing the exchange rate positioning. 
  • The US Treasury will tap the market for a 3-month and 6-month bill auction. 
  • Asian stocks are being slaughtered on Monday, with the Japanese TOPIX index down 1% at its closing bell. Hong Kong’s Hang Seng is down over 2%, in turn European and US equities have flipped into the green and are shrugging off the negative wave out of Asia.
  • The CME Group FedWatch Tool shows that markets are pricing in an 88.5% chance that the Federal Reserve will pause interest rate hikes at its meeting in September. The probability declined from above 90% last week as sticky inflation could mean the Fed might need to keep rates elevated for longer.  
  • The benchmark 10-year US Treasury bond yield trades at 4.15% after the summary from last week’s US inflation data was that inflation is slowing down, though it remains sticky. This confirms that the US Federal Reserve (Fed) is right to hold rates steady for longer, while markets got it wrong with their presumed cuts in early 2024.

US Dollar Index technical analysis: hold on

The US Dollar is trading sideways halfway through the European session after it continued its rally from last week and opens the week with gains against most major peers. The US Dollar Index (DXY) is increasing, printing another new monthly high. Special attention from a technical point of view for EUR/USD where the US Dollar is about to break both the 55-day and the 100-day Simple Moving Average and could see US Dollar strength helping the DXY to break a substantial cap on the upside. 

For the upside, 103 as a big figure will be challenged today. A touch further up, the 200-day SMA at 103.37 will be a difficult cap to cross above. As no real big events are scheduled for this week, and already the DXY has printed a new monthly high this Monday morning, it is questionable if this sentiment-driven move will push the DXY above the important 200-day SMA.    

On the downside, several levels will be tested regarding support. The first candidate is the high of Friday at 102.90. If that fails, look for 102.38 with the 55-day SMA and the 100-day SMA nearby as double belts for underpinning the price action in the US Dollar Index. Should some event or headline trigger a break-even below those two moving averages, expect to see 102 challenged to catch the falling price action.

US Dollar FAQs

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.