- The Dollar is trading slightly lower after Thursday’s firm rise.
- US traders are awaiting statements from Fed Chairman Powell before the restriction period.
- The Dollar Index remains stable above 103 and is one breath away from ending the week in the green.
The United States Dollar (USD) is at a crossroads where it can close the week higher or lower. The US Dollar Index (DXY) has made a stunning recovery this Thursday and is back to its Monday opening price. The main driver is the rate differential between the US and the rest of the world. This increased again after the recent collapse in US rates. These also recovered this week.
On the economic front, two main elements could continue to strengthen the Dollar this week. The first is a speech by US Federal Reserve Chairman Jerome Powell right at the end of this trading day and the second a different set of figures from the Institute for Supply Management. If both data turn out to be favorable for the dollar, it is possible that the pair will break above the 104 level this afternoon.
Daily briefing: Powell to give guidance
- At around 14:45 GMT, the day begins with the release of the S&P Global Manufacturing PMI. The previous one stood at 49.4, so stagnation is expected.
- The last batch of data for this week will be published around 15:00 GMT:
- Construction spending for the month: The previous was 0.4% and is expected to remain unchanged.
- The Institute for Supply Management (ISM) will publish its figures with the November Employment Index: The previous one was 46.8 and the forecast is 47.2.
- The ISM index of new manufacturing orders is expected to rise from 45.5 to 46.7.
- The ISM Manufacturing PMI will rise from 46.7 to 47.6.
- Manufacturing ISM paid prices will rise from 45.1 to 46.2.
- This Friday the Fed data will be published, as it is the last moment before the blackout period before the last Fed rate decision for 2023.
- Chicago Fed’s Austan Goolsbee will speak at 15:00 GMT.
- Fed Chairman Jerome Powell will speak at 16:00 GMT.
- The Fed chairman will speak again at 19:00 GMT.
- Finally, Lisa Cook, from the Fed Board of Governors, will also speak at around 19:00 GMT.
- Late this Thursday, the US Treasury heads to the markets to distribute a 4-week bill.
- Stocks down with the Hang Seng having a very bad week: again down more than 1%. European and American stocks slightly in green.
- CME Group’s FedWatch tool shows that markets are 99.4% pricing in the likelihood that the Federal Reserve will keep interest rates unchanged at its December meeting.
- The 10-year US Treasury yield is trading at 4.31%, a stable distance from this week’s low.
US Dollar Index Technical Analysis: Where We Are Headed
Good for the Dollar, which has good gains to take the lead this week and end its losing streak. US Fed Chair Jerome Powell will have to choose whether he backs the dovish comments of Fed Governor Christopher Waller or sticks with the stable, long-term view of Mary Daly of the San Francisco Fed. The latter could be enough for the Dollar Index (DXY) to exceed 104 points again.
The DXY is approaching the 200-day SMA, which is near 103.58. If Powell’s comments are enough, the DXY could rise again. A two-level pattern of a lower daily close followed by a higher open would put DXY back above 104.28, with the 200-day and 100-day SMAs becoming support levels.
On the downside, the historical levels of August come into play, when the summer recovery of the Dollar occurred. The June lows make sense to look for some support, near 101.92, just below 102. Should further developments occur that initiate further declines in US rates, expect a near full recovery of the rally. in summer 2023, heading towards 100.82, followed by 100.00 and 99.41.
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.
