- Fed Chair Powell notes that inflation remains high despite significant easing, suggesting an uncertain path forward.
- Powell acknowledges that tight monetary policy has balanced both inflation and the economy's overheating, leveling out dual-target risks.
- Weekly initial jobless claims remained stable.
The US Dollar Index (DXY) is trading slightly higher at 105.80. The dollar's modest upward momentum comes despite Federal Reserve (Fed) Chairman Jerome Powell's cautious statements about inflation and its uncertain future trajectory. Ahead of Friday's Non-Farm Payrolls, the weekly jobless claims figures appear to benefit the dollar.
According to the Fed, the US economy has made substantial progress, but inflation remains worryingly high and its trajectory uncertain. Although the Fed's restrictive measures have limited inflation and overheating, progress on inflation has slowed. Friday's Nonfarm Payrolls numbers will provide additional guidance to markets on the state of the economy.
Daily Market Moves Summary: DXY Supported by Labor Market Stability and Reducing Rate Cut Chances
- Initial weekly claims for unemployment benefits stood at 208,000, while no changes were recorded in continuous claims, which continued to remain at 1,774 million, a figure similar to that of the previous week.
- Fed rate cut expectations have changed slightly, with July odds rising to 33% and September and November odds rising to 70% and 95%.
- US Treasury yields are mixed. The 2-year yield drops to 4.93%, while the 5- and 10-year yields drop slightly to 4.64% and 4.63%, respectively.
- For Friday, markets expect a slowdown in April Non-Farm Payrolls, while a slight acceleration in average hourly earnings is expected. The unemployment rate will remain at 3.8%.
DXY Technical Analysis: DXY Bulls Still Struggling, Outlook Remains Positive
The DXY's technical outlook reflects a buying momentum, primarily driven by its position relative to its simple moving averages (SMA). Although the pair has a negative near-term outlook due to the bearish tug-of-war with the bulls, it continues to trade above the 20-day, 100-day, and 200-day simple moving averages, suggesting growing strength among the bulls.
The moving average convergence divergence (MACD) shown by the ascending red bars suggests that the bears are advancing. At the same time, the RSI is flat within positive territory. This indicates that the buying force is weakening while the bears are pushing lower.
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.
