- US Dollar Retreats Further Following Soft US Data
- Chicago Fed President Austan Goolsbee has suggested that the time to cut rates may be near.
- The US Dollar Index drops below 105.50 after US data triggers another move lower.
He United States Dollar (USD) The dollar continued its decline on Wednesday after both ADP and initial jobless claims data confirmed and supported earlier comments by Federal Reserve Bank of Chicago President Austan Goolsbee in Sintra during the European Central Bank symposium. Goolsbee said that holding rates steady while inflation is falling should also be seen as tightening and is no longer necessary, suggesting interest rate cuts are on the table ahead of the Fed’s Federal Open Market Committee (FOMC) Minutes, a bold statement to make.
On the US economic front, the calendar is very busy on Wednesday, with much of the data moving on Thursday due to the US public holiday. The main key element, the ADP employment change number for June ahead of the US non-farm payrolls release on Friday, came in softer than expected. Also, the FOMC minutes for the June meeting are due out later in the day, and some volatility seems guaranteed.
Market Movers: ADP – Jobless Claims Fail
- At 11:30 GMT, Challenger’s June job cuts saw a decrease in job cuts from 63,816 to 48,786.
- ADP’s June job change data missed estimates on all fronts. An increase of 160,000 was expected after the 152,000 seen in May, although the actual number was 150,000.
- Weekly jobless claims were exceptionally high on Wednesday:
- Initial claims for unemployment benefits for the week ending June 28 are expected to rise to 235,000 from 233,000 the previous week. Although the increase was larger, to 238,000.
- Continuing claims for unemployment benefits were 1.839 million, up from 1.858 million for the week ending June 21.
- At 14:00 GMT, the Institute for Supply Management will publish the services Purchasing Managers’ Index (PMI) reading for June:
- The employment index was 47.1 in May, with no forecast available for June.
- The new orders index was 54.1 in May, with no forecast available for June.
- The ISM Services PMI is expected to decline to 52.5 in June from 53.8.
- The prices paid index was 58.1 in May, with no forecast available for June.
- On the Federal Reserve front, some communication on the agenda:
- At 10:30 GMT, remarks by Federal Reserve Bank of New York President John Williams, who is participating in a panel on the drivers of equilibrium interest rates at the ECB Forum on Central Banking in Sintra, Portugal.
- At 18:00 GMT, the FOMC minutes for the Federal Reserve’s June meeting will be released.
- European stocks flirt with a 1% gain on the day. U.S. futures are still searching for direction, though they are starting to emerge from further losses.
- The CME Fedwatch tool broadly supports a September rate cut despite recent comments from Fed officials. The odds now stand at 59.9% for a 25 basis point cut. A rate pause has a 34.7% probability, while a 50 basis point rate cut has a slim 5.4% chance.
- The US 10-year Treasury bond yield is trading near 4.40%, falling to the lower end of the range this week.
Dollar Index Technical Analysis: Goolsbee ready for cuts, now the Fed?
The US Dollar Index (DXY) is pulling back slightly after Chicago Fed President Austan Goolsbee dissented from his peers by saying that holding rates steady for longer is no longer helping. His call for rate cuts is a welcome change after hearing every FOMC member say that rates will remain steady for longer. Rate cuts should see a weakening of the Dollar, and could mean that the DXY will not make new highs in the near term.
On the upside, the pivotal level of 105.89 is a must for further gains. Once a day has closed above that level, breaking above the red downtrend line on the chart below at 106.26 and the April peak at 106.52 are the two main resistances before a fresh nine-month high. That would be reached once 107.35 is broken to the upside.
On the downside, 105.53 is the first support before a trifecta of SMAs. Further down is the 55-day SMA at 105.24, protecting the round figure of 105.00. Further down near 104.75 and 104.45, both the 100-day and 200-day SMAs form a double layer of protection to support any downside along with the green ascending trend line from last December.
Dollar Index: Daily Chart
The banking crisis FAQs
The March 2023 banking crisis occurred when three US-based banks with heavy exposure to the technology sector and cryptocurrencies suffered a surge in withdrawals that revealed serious weaknesses in their balance sheets, resulting in their insolvency.
The highest-profile bank was California-based Silicon Valley Bank (SVB), which saw a surge in withdrawal requests due to a combination of clients fearing the fallout from the FTX debacle and substantially higher returns being offered elsewhere.
In order to make the repayments, Silicon Valley Bank had to sell its holdings of Treasury bonds, mainly from the US. However, due to the rise in interest rates caused by the Federal Reserve’s rapid tightening measures, Treasury bonds had declined substantially. The news that SVB had suffered a loss of $1.8 billion from the sale of its bonds triggered panic and precipitated a large-scale run on the bank that ended with the Federal Deposit Insurance Corporation (FDIC) having to take it over. The crisis spread to San Francisco-based First Republic, which was eventually rescued by a coordinated effort by a group of large US banks. On March 19, Credit Suisse in Switzerland went bankrupt after several years of poor results and had to be absorbed by USB.
The banking crisis was negative for the US Dollar (USD) because it changed expectations about the future path 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 Treasury bonds, the expectation was that the Fed would pause or even reverse its policy path. Since higher interest rates are positive for the US Dollar, the dollar fell as the possibility of a shift in monetary policy was ruled out.
The banking crisis was a bullish event for the price of Gold. First, it benefited from demand due to its status as a safe haven asset. Second, it led investors to expect the Federal Reserve (Fed) to pause its aggressive rate-hiking policy, 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 priced 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.
