- The highlight on Tuesday was the U.S. Bureau of Labor Statistics' release of strong JOLTS job posting numbers for February.
- Markets are awaiting additional data to guide expectations for the easing cycle, which is expected to begin in June.
- Non-Farm Payrolls, average hourly earnings and the unemployment rate will be released this week.
The US Dollar Index (DXY) is trading at 104.95 with slight losses. The Federal Reserve (Fed) and economic data are signaling a strong US economy, causing markets to retreat from their full confidence in a rate cut in June. This week's jobs data will continue to shape those expectations.
The US economy remains resilient as the Federal Reserve takes a cautious approach under Powell. Even though forecasts indicate a rise in inflation, the Fed is avoiding drastic reactions to temporary price spikes. The possible start of a monetary easing phase in June depends on future economic data. Several Fed speakers will speak Tuesday.
Daily Market Moves Summary: DXY Loses Ground Despite Good Jobs Data
- The US Bureau of Labor Statistics (BLS) released the February Job Openings and Labor Turnover Survey (JOLTS), which showed 8.75 million job openings.
- This figure surpassed January's adjusted count of 8.74M and exceeded market expectations of 8.74M.
- At the moment, the market sees a 63% probability of the first 25 basis point rate cut occurring in June, which still depends on incoming data.
- US Treasury yields are mixed on Tuesday, with the 2-year yield at 4.70%, indicating a slight move lower. On the contrary, the 5 and 10 year yields, at 4.34% and 4.36%, respectively, show slight increases.
- Non-Farm Payrolls, Average Hourly Earnings and Unemployment Rate data will dictate the pace of expectations and the US Dollar in the near term.
DXY Technical Analysis: DXY Bulls Take a Pause But Remain in Control
On the daily chart, the Relative Strength Index (RSI) is on a negative slope, although still in positive territory, implying a possible weakening of the buying momentum. This may be an indication that the bulls are taking a pause at the moment, having taken the index to its highest level since mid-February. The Moving Average Convergence Divergence (MACD) shows decreasing green bars, further indicating that the bullish momentum appears to be losing steam.
Despite showing a negative short-term outlook, the pair is trading above its 20-day, 100-day, and 200-day simple moving averages (SMA). This suggests that the overall trend remains predominantly bullish.
Frequently Asked Questions about the US Dollar
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.
