- The US dollar rebounds, with inflation on the decline again.
- Operators rule out three cuts for 2024 and now only see two.
- The US Dollar Index shoots up and is approaching 105.00 points.
He US dollar (USD) is being bought, that is clear after the recent release of the US Consumer Price Index (CPI). With all the numbers at the upper end of expectations, there is no longer any doubt that June is off the table for a first cut by the US Federal Reserve. Markets go even further and completely rule out three or two rate cuts.
The pressure is now focused on the publication of the US Federal Reserve minutes this Wednesday. Should the minutes be as dovish as Fed Chairman Jerome Powell's last speech, markets could begin to show more disbelief toward the Fed. This could lead markets to think the Fed is facing a policy mistake, with the US Dollar set to rise even further over a longer period of time.
Daily summary of market movements: Forget
- At 11:00 GMT, this eventful Wednesday will kick off with figures from the Mortgage Bankers Association (MBA). MBA mortgage applications for the week ending April 5 stood at 0.1%, down from -0.6% last week.
- At 12:30 GMT the US Consumer Price Index for March was published:
- Monthly inflation remained at 0.4%
- Annual headline inflation accelerated from 3.2% to 3.5%.
- Monthly core inflation remained unchanged at 0.4%.
- Annual core inflation remained stable at 3.8%.
- Wholesale inventory data for February will be published at 14:00 GMT, for which a stable increase of 0.5% is expected.
- Federal Reserve Bank of Chicago President Austan Goolsbee will speak at around 16:45 GMT.
- The Federal Open Market Committee (FOMC) will publish the minutes of its recent March meeting at around 18:00 GMT. Traders will be looking for clearer clues or evidence about when the Fed will begin cutting its interest rates.
- Asian stocks are very dispersed and only the Chinese Hang Seng Index (HSI Index) is up close to 2%. All other Asian indices are in the red. European and US stocks are slightly in the green ahead of the US inflation release.
- According to CME Group's FedWatch tool, expectations for the May 1 Fed meeting are at 97.4% to keep the federal funds rate unchanged, while the odds of a rate cut are at 97.4%. 2.6%.
- The 10-year US Treasury bond yield is trading around 4.36%, which represents a decline in anticipation of US inflation.
US Dollar Index Technical Analysis: Increased Volatility
The US Dollar Index (DXY) has been consolidating since the early days of 2024. Although the trading range seems to be around 5% since the beginning of this year, it has even been limited to just 3% most of the time. Volatility does not exist and is fleeting, if it exists at all, which is why Wednesday's US CPI release is crucial as it could be the last possible data to confirm whether the Fed is willing to start reducing borrowing costs in June, or whether it might not cut rates until after the summer or not at all in 2024.
The first key level for the DXY lies at 104.60, which was broken down on Wednesday of last week, although it was broken back up from below on Friday. Further up, 105.12 is the key point after the DXY failed to break that level last week. Once above those levels, 105.88 is the last resistance point before the Relative Strength Index (RSI) enters overbought levels.
Support at the 200-day SMA at 103.81, 100-day SMA at 103.43, and 55-day SMA at 103.90 showed their importance on Wednesday last week. Further down, the big figure at 103.00 looks set to remain intact for longer, with ample support standing in its way.
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Frequently Asked Questions about the US Dollar
What is the US Dollar?
The United States 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 in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions.
After World War II, the USD took over from the pound sterling as the world's reserve currency.
How do the decisions of the Federal Reserve affect the Dollar?
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
What is Quantitative Easing and how does it influence the 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 into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of 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 of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
What is quantitative tightening and how does it influence the US dollar?
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
