- The US dollar recovers on Thursday after Wednesday's brief moment of weakness.
- Traders were surprised by the dovish stance of the Fed, which continued to anticipate three rate cuts this year.
- The US Dollar Index fell to the 103.00 area before rebounding.
He US dollar (USD) is entering a period of volatility after markets were surprised on Wednesday when the release of the Fed's monetary policy decision revealed that the Federal Open Market Committee (FOMC) remains committed to cutting interest rates three times this year. Markets had already repriced their stance to just two cuts before the Fed event. The repricing of the Fed statement translated into broad weakness in the US dollar, and stocks rose sharply.
As for economic data, Thursday's could not come at a better time. With the release of preliminary Purchasing Managers' Index (PMI) figures, markets can get confirmation of whether the Fed is right to maintain the three cuts. If the economy remains strong, the Fed could lower its rate cut expectations to just two or one cut to keep inflation in check, as firm demand tends to fuel inflation.
Daily Market Summary: Stable at Opening
- The Swiss National Bank (SNB) has cut its interest rate by 25 basis points, from 1.75% to 1.50%. The Norwegian Norges Bank kept rates at 4.50%, while the Bank of England also kept them unchanged, considering that it is still early to cut them.
- Thursday's US economic releases began at 12:30 GMT with mixed data:
- Fourth-quarter current account data moved from an upwardly revised deficit of $196.4 billion to $194.8 billion. .
- The Philadelphia Fed manufacturing survey for March came in at 3.2, better than expected, although down from the previous 5.2.
- Initial jobless claims this week stood at 210,000, up from 212,000 previously.
- Applications for continued unemployment benefits rose slightly from 1,803 million to 1,807 million.
- At 13:45 GMT, S&P Global will release the preliminary March purchasing managers survey:
- The services PMI is expected to go from 52.3 to 52.
- The manufacturing PMI should go from 52.2 to 51.7.
- The composite PMI stood at 52.5 in February, without forecast.
- Existing home sales data will be published at 14:00 GMT, and a slight decline is expected from 4 million to 3.94 million.
- Federal Reserve Vice Chairman of Supervision Michael Barr will speak at around 16:00 GMT.
- Stocks hold onto overnight gains and continue to advance. Japan and China closed with gains of more than 1.5% in all their main indices. European stocks remain below 1% and US equity futures have the Nasdaq leading the way, up close to 1% before the US market opens.
- According to CME Group's FedWatch tool, expectations for the May 1 Fed meeting are 91.5% to keep rates unchanged, while the odds of a rate cut stand at 7.5%.
- The benchmark 10-year US Treasury bond yield is trading around 4.23%, the lowest level this week.
Dollar Index Technical Analysis: DXY Halts in Q1
The US Dollar Index (DXY) is turning into a sleep fest after Wednesday's Fed meeting. The DXY is jumping this Thursday, partially erasing Wednesday's losses after markets repriced the three cuts. Traders should be very aware that entering a trade in the US dollar means tighter entries and stop losses, since the volatility in the last three months (January 2024 to March 2024) was only around 6.5 %, less than the 14% seen in the previous three months (September 2023 to December 2023)
The DXY is on track to break above the 200-day SMA at 103.70 before breaking back above 104.00. To the upside, 104.96 remains the first level in sight. Once above there, the February high of 104.97 comes into play ahead of the 105.00 region with 105.12 as first resistance.
Support from the 200-day SMA at 103.70, the 100-day SMA at 103.54, and the 55-day SMA at 103.53 did not provide enough support during the Fed meeting. The big figure at 103.00 appears to be rather a level to focus on for future reference when the DXY sinks. In case 103.00 fails to hold, 102.48-102.35 appears along with the March low as a level to watch.
Pound Sterling FAQ
What is the Pound Sterling?
The British Pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded currency unit in the world, with 12% of all transactions and an average of $630 billion per day, according to 2022 data.
Its key currency pairs are GBP/USD, also known as “Cable”, which represents 11% of the forex market, GBP/JPY, or the “Dragon” as it is known to traders (3%), and EUR/GBP (2%). The pound sterling is issued by the Bank of England (BoE).
How do Bank of England decisions influence the Pound Sterling?
The most important factor influencing the value of the Pound Sterling is the monetary policy decided by the Bank of England. The Bank of England bases its decisions on achieving its main objective of “price stability”, that is, a stable inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates.
When inflation is too high, the Bank of England tries to contain it by raising interest rates, which makes access to credit more expensive for individuals and companies. This tends to be positive for the GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation is too low, it is a sign that economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to make credit cheaper, so that companies borrow more to invest in projects that generate growth.
How does economic data influence the value of the Pound?
The published data gauges the health of the economy and may influence the value of the Pound sterling. Indicators such as GDP, manufacturing and services PMIs, and employment can influence the direction of the Pound.
A strong economy is good for the British pound. Not only does it attract more foreign investment, but it may encourage the Bank of England to raise interest rates, which will directly strengthen the Pound. Otherwise, if economic data is weak, the pound is likely to fall.
How does the trade balance affect the Pound?
Another significant data for the pound sterling is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period.
If a country produces highly sought-after exports, its currency will benefit exclusively from the additional demand created by foreign buyers wishing to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
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.
