US Dollar tumbles as Ukraine peace talks gain traction
- DXY erases Friday’s gains, slipping as European leaders back Ukraine peace deal guarantees.
- US Manufacturing PMI beats estimates, while ISM Manufacturing PMI misses expectations.
- Bond yields edge lower, reinforcing expectations of Fed rate cuts later in 2025.
- Technical indicators suggest further downside as key moving averages converge near 107.00.
The US Dollar Index (DXY), which tracks the performance of the Greenback against a basket of six major currencies, is diving sharply on Monday as optimism surrounding a potential Ukraine peace deal weighs on safe-haven demand. European leaders have signaled their willingness to back security guarantees for Ukraine, boosting risk sentiment across global markets.
Meanwhile, United States (US) economic data provided mixed signals. The ISM Manufacturing PMI missed forecasts, while the S&P Global Manufacturing PMI came in stronger than expected. As a result, DXY slides back from last week's highs, undoing Friday’s advance.
Daily digest market movers: US Dollar plunges as geopolitical optimism lifts sentiment, US data comes mixed
- DXY tumbles as investors reduce safe-haven exposure amid Ukraine peace deal optimism. This came after several European leaders cooled down the jitters after Friday’s heated conversations between the American and Ukrainian presidents.
- On the data front, S&P Global’s final Manufacturing PMI for February exceeded estimates at 52.7, strengthening from the preliminary reading.
- ISM Manufacturing PMI came in at 50.3, slightly below the 50.5 forecast and down from January’s 50.9.
- The ISM Prices Paid subindex spiked to 62.4, surpassing estimates and accelerating from January’s 54.9.
- New Orders component dropped to 48.6, reflecting a significant decline from 55.1 in January.
- As a reaction, Wall Street trades mixed, with major US indices posting marginal gains and losses. US Treasury yields drift lower, extending the downtrend from last week’s highs.
- The CME FedWatch Tool indicates an increasing probability of a Fed rate cut in June, though some odds still favor steady rates.
DXY technical outlook: Bearish crossover looms as downside momentum builds
The US Dollar Index (DXY) turns lower, slipping below the 20-day and 100-day Simple Moving Averages (SMA), which are nearing a bearish crossover around the 107.00 level. Momentum indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are reinforcing the negative outlook. Key support levels emerge at 106.00 and 105.50, while 107.00 remains the first resistance level should the index attempt a rebound. However, with fundamental and technical factors aligning to the downside, further weakness is likely in the short term.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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