US Dollar stalls as traders await key data and Fed speakers
- The DXY remains stuck around 106.00, looking for direction on Presidents’ Day.
- Fed funds futures price in 50 basis points of rate cuts for 2025 after weak Retail Sales data.
- Traders are eyeing global February PMI readings on Friday for potential divergence signals.
- US tariff concerns persist with auto levies expected to begin on April 2.
The US Dollar Index (DXY), which tracks the US Dollar's performance against six major currencies, trades flat on Monday as traders monitor new geopolitical developments. With ongoing talks in Riyadh regarding a Ukraine-Russia peace deal, markets are assessing potential outcomes and their impact on risk sentiment. At the time of writing, the DXY remains stuck above the 106.00 range with investors awaiting key economic data later this week.
Daily digest market movers: US Dollar remains range-bound as markets digest mixed signals
- The US Dollar hovers near last week’s low with no clear directional momentum.
- Fed funds futures now price in 50 basis points of rate cuts for 2025 following weak US January Retail Sales data.
- Despite the Retail Sales miss, consumer spending remains supported by real wage growth, a solid labor market, and strong household balance sheets.
- Traders may not see much USD relief until Friday when global February PMI data could highlight divergence among economies.
- Philadelphia Fed President Patrick Harker, Fed Governor Michelle Bowman, and Fed Governor Christopher Waller will speak on Monday.
- Last Friday, Fed President Lorie Logan cautioned that lower inflation does not automatically warrant further rate cuts.
- Markets continue to shrug off tariff concerns despite US President Donald Trump confirming auto levies will begin on April 2.
- Country-by-country reciprocal tariffs are also set to take effect around the same time, though implementation may be gradual.
DXY technical outlook: Key support in focus as bearish pressure builds
The US Dollar Index struggles to maintain momentum after losing the 20-day Simple Moving Average (SMA), reinforcing a bearish outlook. The Relative Strength Index (RSI) remains in negative territory, confirming weakening momentum, while the Moving Average Convergence Divergence (MACD) suggests a steady bearish trend.
Immediate support is seen at the 100-day SMA near 106.30 with a break below this level likely to confirm a negative short-term outlook. Resistance remains at 106.80, followed by the 20-day SMA at 107.20.
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.
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