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US Dollar flattens as markets brace for data, Fed-packed Tuesday

  • The US Dollar trades broadly unchanged ahead of a big slew of economic data and public comments from Federal Reserve officials.
  • European sovereign bond spreads ease, with French markets partially recovering from last week’s losses. 
  • The US Dollar index trades below 105.50, facing significant support and resistance levels nearby. 

The US Dollar (USD) trades broadly steady on Tuesday, a big day in terms of US economic data and comments from Federal Reserve (Fed) policymakers ahead of the US  Juneteenth public holiday on Wednesday. Before enjoying a day off in the middle of the week, traders are starting to pull back their earlier bets favoring the Greenback against the Euro following the European bond market rout last week. With sovereign bond spreads in the Eurozone easing, it looks like markets are digesting political jitters in Europe, with the focus turning back to US data and interest-rate projections. 

On the US economic data front, Tuesday’s calendar offers a chunky batch of data, the most important one being  Retail Sales, a key indicator for consumer spending. Credit card sales data suggest that Retail Sales could come in higher than expected for May. Apart from this, it is also a busy day for the Fed watchers as six US Federal Reserve speakers will make public comments throughout the day. 

Daily digest market movers: Here comes the Fed

  • On US data, the main course will be served at 12:30 GMT with US Retail Sales for May:
    • Headline Retail Sales expected to increase by 0.2% after being unchanged in April.
    • Retail Sales without transportation are seen growing at a stable 0.2%.
    • Revisions for the previous numbers, if significant, might also move markets.
  • At 12:55 GMT, the US Redbook Index for the second week of June is expected. The previous release was at 5.5%.
  • At 13:15 GMT, Industrial Production and Capacity Utilization data for May will be released. Industrial Production is expected to increase by 0.3% after being unchanged a month earlier. Capacity Utilization seen heading to 78.6% from 78.4%.
  • An army of Fed speakers will have comments for the markets:
    • Federal Reserve Bank of Richmond President Thomas Barkin speaks at 14:00 GMT about the US economic outlook at a Market News International webcast.
    • Federal Reserve Bank of Boston President Susan Collins will speak at 15:40 GMT at the 2024 annual meeting and 10th year anniversary of the Lawrence Partnership.
    • Federal Reserve Governor Adriana Kugler participates in a conversation about the US economic outlook and monetary policy at the Peterson Institute for International Economics at 17:00 GMT.
    • At the same time Federal Reserve Bank of Dallas President Lorie Logan participates in a conversation about the current state of the US economy at the Headliners Speaker Series in Austin.
    • Freshly appointed Federal Reserve Bank of St. Louis President Alberto Musalem delivers a speech and participates in a moderated Q&A about the US economic outlook and monetary policy at the CFA Society St. Louis Luncheon near 17:20 GMT.
    • The cherry on the cake will be Federal Reserve Bank of Chicago President Austan Goolsbee, who participates in a monetary policy discussion at the 2024 Marshall Forum on the University of Chicago campus at 18:00 GMT.
  • Equity markets are shaking off their losses from last week with green across the globe. US futures are also mildly in the green after Nvidia reached a new all-time high on Monday.
  • The CME FedWatch Tool shows a 40.4% chance of the Fed interest rate remaining at the current level in September. Odds for a 25-basis-points rate cut stand at 55.0%, while a very slim 4.6% chance is priced in for a 50-basis-points rate cut.
  • The benchmark 10-year US Treasury Note trades higher for the week, near 4.28%. 

US Dollar Index Technical Analysis: Water under the bridge

The US Dollar Index (DXY) is seeing its safe-haven inflows abate on Tuesday with markets dialling down on their bets of political turmoil in Europe after the election outcome. With sovereign bond spreads in the Eurozone easing from their distressed levels, it looks like the Greenback might need to look somewhere else for support. Fed speakers will be holding the key as their comments might move the DXY should the hawkish stance prevail even after those softer inflation numbers. 

On the upside, no big changes to the levels traders need to watch out for. The first is 105.52, where the DXY is trading around this Tuesday, which is a barrier that held during most of April. The next level to watch is 105.88, which triggered a rejection at the start of May and will likely play its role as resistance again. Further up, the biggest challenge remains at 106.51, the year-to-date high from April 16. 

On the downside, the trifecta of Simple Moving Averages (SMA) is still playing support. First is the 55-day SMA at 105.11, safeguarding the 105.00 figure. A touch lower, near 104.57 and 104.47, both the 100-day and the 200-day SMA are forming a double layer of protection to support any declines. Should this area be broken, look for 104.00 to salvage the situation. 

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.