- The DXY bottomed at weekly lows and managed to trim Wednesday's losses.
- The Fed's stance appears slightly dovish, unequivocally resisting an overreaction after two months of rising inflation.
- S&P Global PMI indices were mixed and jobless claims numbers were better than expected.
The US Dollar Index (DXY) is currently trading at 103.80, up 0.50%, virtually paring all of Wednesday's losses. The dollar gained ground following the release of preliminary S&P March PMIs, which were mixed, and strong weekly jobless claims numbers.
The prevailing consensus is the start of a flexibility cycle in June and the timing of the next cut will be dictated by the data that becomes known. With recent inflation figures on the rise, the Fed revised its inflation forecasts upward. However, Jerome Powell confirmed that the Federal Reserve will not overreact. This consideration made the Fed's stance more dovish, implying a less aggressive approach to rates. The Dot Plot showed that the median rate forecast for the end of this year remains at 4.6%.
Daily Market Moves Summary: DXY Shows Uptrend Near 103.80, Following Post-FOMC Sell-Off
- S&P Global's initial purchasing managers' survey for March showed a slight decline in the services PMI, which fell from 52.3 to 51.7 points.
- On the contrary, the manufacturing PMI increased from 52.2 to 52.5 points. The composite PMI, which stood at 52.5 in February, recorded a slight drop to 52.2.
- Initial jobless claims for the week ending March 15 stood at 210,000, below the 215,000 expected.
- Following the FOMC decision, US Treasury yields rise, with the 2-year yield at 4.59%, the 5-year yield at 4.25%, and the 10-year yield at 4.27%.
DXY Technical Analysis: DXY Shows Bullish Momentum, Trims Wednesday's Losses
The DXY technical outlook reflects a recovery in bullish momentum. This view is primarily driven by the rising slope and positive territory of the Relative Strength Index (RSI), which signals increasing buying pressure. Furthermore, the rising green bars on the Moving Average Convergence Divergence (MACD) histogram means that buying momentum is increasing.
Furthermore, the index recovered above the convergence of the 20-day, 100-day, and 200-day simple moving averages (SMA), further reinforcing a resilient bullish pull. If the DXY manages to stay above the 103.50-70 zone, the outlook will be rosy for the DXY.
US Dollar FAQ
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.
