- The US dollar continues to trade near new March highs.
- Investors are enjoying a bank holiday despite the release of US economic data.
- The US Dollar Index DXY remains near 105.00 despite the slight decline.
The US Dollar (USD) never sleeps and that proverb certainly applies this Friday. The dollar is clinging to its recent gains on Good Friday, a holiday during which European and US trading desks will operate at minimum capacity. There were no fireworks, and the US Dollar Index DXY was rather flat.
The key data of the day is the US Federal Reserve's preferred inflation indicator, the personal consumption expenditure (PCE) price index. Although he hasn't brought any Easter eggs, Fed Chairman Jerome Powell will speak later this Friday and could bring some surprises.
Daily summary of market drivers: PCE without surprises
- At 12:30 GMT the main data to take into account has been published:
- Personal consumption spending for February:
- The monthly PCE went from 0.4% to 0.3%
- The annual PCE went from 2.4% to 2.5%.
- The monthly core PCE went from 0.5% to 0.3%.
- The annual core PCE index fell from 2.9% to 2.8%.
- The US goods trade balance in February stood at -91.8 billion dollars, compared to -90.5 billion in January.
- Personal income slowed from 1% to just 0.3%.
- Personal spending rose from 0.2% to 0.8%.
- January wholesale inventories fell 0.3% and rose 0.5% in February.
- Personal consumption spending for February:
- At 15:15 GMT, Federal Reserve Bank of San Francisco President Mary Daly will begin the Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference. It will be followed by a statement from Fed Chair Jerome Powell at around 15:30 GMT.
- Stocks will not move this Friday, with European and US markets closed.
- According to the CME Group's FedWatch tool, expectations for the May 1 Fed meeting are at 95.8% to keep the federal funds rate unchanged, while the odds of a rate cut are at 95.8%. 4.2%.
- The 10-year US Treasury bond is trading around 4.20%, up from 4.18% earlier in the week.
US Dollar Index DXY Technical Analysis: Don't Be Fooled By This Figure
The US Dollar Index DXY is heading towards a possible new high for March now trading just below the 105.00 level at 104.72. US Dollar bulls are clearly back in the game with a four-day winning streak for the Dollar. Although expectations surrounding the PCE numbers are already in favor of a rebound, the magnitude of such a rebound could fuel a significant rise in the US dollar amid exceptionally low liquidity in the markets.
The first key level for the DXY index is 104.60, where it peaked last week, and has now been surpassed. Further up, 104.96 remains the level to beat to reach 105.00. Once surpassed, 105.12 is the level to beat.
The 200-day SMA support at 103.75, the 100-day SMA at 103.48 and the 55-day SMA at 103.72 fail to show their importance as support because investors did not expect a drop to those levels for a Change of trend. The big 103.00 level looks like it will remain uncontested for a while longer.
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.
