- The US dollar sees gains for this Friday and this week, trading at the strongest level since early November.
- Traders push the dollar higher, while markets divide into two camps, with weaker currencies and stronger currencies
- The US Dollar Index advances towards 106.00.
The US Dollar (USD) is being pushed higher thanks to geopolitical tensions, risk aversion in US equity markets and the rate differential that is causing US rates to rise for longer. time compared to its competitors. Investors do not appear to be taking profits despite the recent rally, which could mean that further strength in the US dollar is expected next week. The main driver of the movement is the collapse of European bonds, whose yields are sinking compared to the very stable US ones, as the rate differential between both sides of the Atlantic widens.
Regarding economic data, traders are beginning to applaud good data under the label of American exceptionalism. Stocks could also rally despite the rise in interest rates, with the idea that there is no slowdown in the economy and that the current level of high rates is even good for avoiding overheating. Figures from the University of Michigan this afternoon could further support this idea.
Daily summary of market movements: ECB hits the Euro
- Several members of the European Central Bank have conveyed a similar message this morning: the cuts must occur now and June is a guarantee. This has caused losses of more than 0.70% of the Euro against the Dollar. The Euro accounts for about 57% of the weighting of the US Dollar Index (DXY).
- Import and export price indices for March:
- The monthly export price index went from 0.7% to 0.3%.
- The monthly import price index rose slightly, from 0.3% to 0.4%.
- Preliminary figures for April from the University of Michigan will be published at 14:00 GMT:
- Consumer sentiment is expected to decline slightly to 79 from 79.4.
- Inflation expectations were previously at 2.8%, and a rebound is expected following the recent Consumer Price Index (CPI) figures.
- Three members of the US Federal Reserve will speak later on Friday:
- At 17:00 GMT, Federal Reserve Bank of Kansas City President Jeffrey Schmid will deliver a keynote address.
- At around 18:30 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic will deliver a speech on the housing crisis.
- Finally, at 19:30 GMT, Federal Reserve Bank of San Francisco President Mary Daly will participate in a discussion at a Fintech Conference.
- Brutal day for equities, as European stocks give up 1% gains previously recorded and fall into the red, while US equities fall 1%.
- CME's FedWatch tool quotes a 93.4% probability of no change in the official interest rate by May 1. At the moment, the highest odds are on September 18, with a 44.7% chance of a first rate cut, versus 28.5% for a no-change stance.
- The 10-year US Treasury yield is trading around 4.51%, retreating slightly after reaching 4.59% late Thursday.
US Dollar Index Technical Analysis: If this doesn't wake up traders…
The performance of the US Dollar Index (DXY) shows that markets continue to shake after this week's shocks. Bullish price pressures in the US for the third consecutive month are rapidly displacing bets on a Fed rate cut later this year, breaking the dominant dynamic so far this year.
From now on, it is clear that whichever central bank – and, consequently, the currency – has to start cutting its reference rate will face severe punishment from the markets. In contrast, central banks that keep rates stable for longer are likely to be rewarded with greater appreciation of their currency, as long as their economy is strong despite current high rate regimes. The pack is dividing in two: while the weaker economies will see their currencies exposed, the stronger ones are expected to continue rising.
To the upside, the first level for the DXY is the November 10 high at 106.01, just above the 106.00 figure. Further up and above the round level of 107.00, the DXY index could find resistance at 107.35, the October 3 high.
To the downside, there are also new support levels to mark, with the first important level being the big figure of 105.00. Further down, 104.60 should also provide support, ahead of the 55-day and 200-day SMA at 103.97 and 103.84, respectively.
Frequently asked questions about the banking crisis
What happened during the banking crisis?
The March 2023 banking crisis occurred when three US-based banks with heavy exposure to the technology sector and cryptocurrencies suffered a spike in withdrawals that revealed serious weaknesses in their balance sheets, resulting in their insolvency.
The most high-profile bank was California-based Silicon Valley Bank (SVB), which saw a spike in withdrawal requests due to a combination of clients fearing the fallout from the FTX debacle as substantially higher returns were being offered. higher elsewhere.
Did the bank spread the banking liquidity crisis?
In order to make the repayments, the Silicon Valley Bank had to sell its holdings of Treasury bonds, mainly from the US. However, due to the increase in interest rates caused by the rapid tightening measures of the Federal Reserve, the Treasury bonds had decreased substantially. The news that SVB had suffered a $1.8 billion loss on the sale of its bonds sparked panic and precipitated a full-scale run on the bank that ended with the Federal Deposit Insurance Corporation (FDIC) having to take over. of the same. The crisis spread to First Republic, based in San Francisco, which ended up being rescued thanks to a coordinated effort by a group of large American banks. On March 19, Credit Suisse in Switzerland went bankrupt after several years of poor results and had to be absorbed by USB.
What was the impact of the banking crisis on the US Dollar?
The banking crisis was negative for the US Dollar (USD) because it changed expectations about the future course of interest rates. Before the crisis, investors expected the Federal Reserve (Fed) to continue raising interest rates to combat persistently high inflation; However, once it became clear how much pressure this was putting on the banking sector by devaluing bank holdings of US Treasuries, the expectation was that the Federal Reserve would pause or even reverse its policy trajectory. Since higher interest rates are positive for the US dollar, it fell as the possibility of a shift in monetary policy was ruled out.
What was the impact of the banking crisis on the price of Gold?
The banking crisis was a bullish event for the price of Gold. Firstly, it benefited from demand due to its status as a safe haven asset. Second, it led investors to expect that the Federal Reserve (Fed) would pause its aggressive policy of rate hikes, fearing the impact on the financial stability of the banking system: expectations of lower interest rates reduced the opportunity cost of holding Gold. Third, Gold, which is traded in US Dollars (XAU/USD), rose in value because the US Dollar weakened.
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.
