US Dollar rebounds after NFPs and ISM PMIs

Source Fxstreet
  • US Dollar retreated after posting solid gains in recent weeks.
  • Nonfarm Payrolls increased by 12,000 in October, falling short of market expectations.
  • Markets remain almost fully pricing in a 25 bps cut by the Fed next week.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, rebounded intraday despite the weak jobs data as annual wage inflation rose to 4%, indicating that inflationary pressures remain elevated. In the meantime, markets remain almost fully expecting a 25 basis-point-cut by the Federal Reserve (Fed) next week. On the data front, ISM PMIs also came in mixed from September.

The DXY continues to trade sideways near 104.00. Despite persistent inflation, weak job growth data raises expectations of a less hawkish Fed stance, which might start to weaken the USD.

Daily digest market movers: US Dollar recovers after NFPs

  • Nonfarm Payrolls in the US rose by a mere 12,000 in October, significantly missing market expectations of 113,000.
  • The Unemployment Rate remained unchanged at 4.1%, in line with expectations.
  • Wage inflation, as measured by Average Hourly Earnings, rose to 4% from 3.9%.
  • Business activity in the US manufacturing sector continued to contract at a faster pace in October, with the ISM Manufacturing PMI dropping to 46.5 from 47.2 in September. This figure came in below the market expectation of 47.6.
  • The Services PMI rose to 54.9 in October, indicating a strong expansion in the US service sector.
  • Markets are pricing in a 25 bps cut by the Fed next week and an 85% chance of another 25 bps cut in December.

DXY technical outlook: DXY consolidating, finds support the 200-day SMA

The index retested the 200-day Simple Moving Average (SMA) support at 104.15 and buyers successfully defended it. The Relative Strength Index (RSI) is pointing down, still near overbought territory, and the Moving Average Convergence Divergence (MACD) is printing lower green bars, indicating bearish momentum. In that sense, if buyers show resilience it may present better around the mentioned SMA.

Key support levels include 104.15, 104.05, and 104.00, while resistance is encountered at 104.70, 104.90, and 105.00. Traders monitor these levels closely for breakout opportunities.

US Dollar FAQs

The US 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 found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

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 in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering 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 in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Japanese Yen stands tall near one-month top against USD on hawkish BoJ talksThe Japanese Yen (JPY) rallied to the highest level since early February against its American counterpart on Friday amid bets for an imminent shift in the Bank of Japan's (BoJ) policy stance.
Author  FXStreet
Mar 11, Mon
The Japanese Yen (JPY) rallied to the highest level since early February against its American counterpart on Friday amid bets for an imminent shift in the Bank of Japan's (BoJ) policy stance.
placeholder
Natural Gas sinks to pivotal level as China’s demand slumpsNatural Gas price (XNG/USD) edges lower and sinks to $2.56 on Monday, extending its losing streak for the fifth day in a row. The move comes on the back of China cutting its Liquified Natural Gas (LNG) imports after prices rose above $3.0 in June. It
Author  FXStreet
Jul 01, Mon
Natural Gas price (XNG/USD) edges lower and sinks to $2.56 on Monday, extending its losing streak for the fifth day in a row. The move comes on the back of China cutting its Liquified Natural Gas (LNG) imports after prices rose above $3.0 in June. It
placeholder
The $589 XRP Dream: Believers Aren’t ‘Delusional’ Enough, Expert SaysA known market analyst sees the $6 per coin prediction for XRP crypto being claimed by some experts as too conservative.
Author  NewsBTC
Dec 17, Tue
A known market analyst sees the $6 per coin prediction for XRP crypto being claimed by some experts as too conservative.
placeholder
Bitcoin Price Annual Forecast: 2025 outlook brightens on expectations of US pro-crypto policyBitcoin (BTC) price has surged more than 140% in 2024, reaching the $100K milestone in early December.
Author  FXStreet
Dec 19, Thu
Bitcoin (BTC) price has surged more than 140% in 2024, reaching the $100K milestone in early December.
placeholder
Rumble shares surge 46% in pre-open trade on $775M investment from TetherInvesting.com -- Shares of Rumble (NASDAQ:RUM) surged over 46% in pre-open trade on Monday following a $775 million investment from Tether, the digital assets company behind the widely used USDT stablecoin.
Author  Investing.com
15 hours ago
Investing.com -- Shares of Rumble (NASDAQ:RUM) surged over 46% in pre-open trade on Monday following a $775 million investment from Tether, the digital assets company behind the widely used USDT stablecoin.
Related Instrument
goTop
quote