- The US dollar is trading mostly higher against major currencies.
- Markets prepare for Friday's crucial US jobs report.
- The US Dollar Index is still hovering around 104.00, although it could change direction this week.
He US dollar (USD) faces a very tough week in which traders will have to be vigilant if they want to survive the carnage ahead. The two main elements this week will be the appearance of the chair of the US Federal Reserve, Jerome Powell, who will face Senator Elisabeth Warren and other politicians in Congress, and the US jobs report from the Friday. Meanwhile, headlines from China's National People's Congress and US President Joe Biden's State of the Union address could trigger some intraday volatility.
On the economic front, all eyes will be on the usual data ahead of the US employment report with the NFP, ADP figures and the JOLTS job openings report on Wednesday. As always, there is no connection between ADP and Friday's nonfarm payrolls, although enough to create volatility in addition to the five-plus US Fed speakers plus Jerome Powell due to release comments on the markets.
Daily summary of market movements: Pay attention to the monitors this week
- Philadelphia Fed chief Patrick Harker will take the stage this Monday around 16:00 CET.
- The US Treasury will address the markets to assign a 3-month bill and another 6-month bill around 16:30 GMT.
- The Japanese Nikkei index has exceeded 40,000 points for the first time in its history.
- Nikki Haley has won the District of Columbia (Washington DC) primary, breaking the winning streak of former US President Donald Trump.
- Some items to note on your calendar for this week that could carry some significant risk for the headlines:
- China holds its National Party Congress from March 5 to 11. Watch for any headlines on easing and stimulus support for Chinese markets.
- Super Tuesday is also right around the corner, with primaries for Republicans and Democrats in 17 states.
- US President Joe Biden will release his State of the Union on Thursday.
- Stocks are looking for direction without any real outliers. The only thing worth mentioning at the far end of the risk spectrum is that Bitcoin is soaring about 3.5% this Monday.
- According to CME Group's FedWatch tool, expectations of a Fed pause at the March 20 meeting stand at 97%, while the odds of a rate cut stand at 3%.
- The 10-year US Treasury bond is trading around 4.20%, around last week's range.
The US Dollar Index (DXY) enters another week of being trapped between what can only be described as the range of the simple moving averages (SMA). The 100-day SMA (104.63) ensures that the DXY does not break out higher, while the 55-day SMA (103.51) ensures that the Dollar does not retreat to the lowest levels of 2024. This week is coming more risk headlines and events that could finally move the needle and stage a breakout to the upside or downside for the DXY.
To the upside, the 100-day SMA near 103.94 is being well respected on Monday. Should the Dollar break above 104.60, 105.12 is the next key level to watch. One step further, 105.88, the November 2023 high. Finally, 107.20, the 2023 high, could be back in the spotlight.
Looking down, the 200-day SMA at 103.74 has been broken several times recently, although it has not seen a daily close below it in the past week, demonstrating its importance. However, the 200-day SMA should not give way that easily, so a small pullback to that level could be more than acceptable. Ultimately, if it were to lose strength, prices could fall as low as 103.22, the 55-day SMA, before testing 103.00.
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.
