US Dollar steadies as markets assess Bessent appointment as Treasury Secretary
- The US Dollar broadly steadies at the beginning of a holiday-shortened week due to Thanksgiving.
- President-elect Donald Trump has nominated Scott Bessent for the role of Treasury Secretary.
- The US Dollar Index struggles to stay afloat above 107.00.
The US Dollar (USD) is flat at the start of the week after President-elect Donald Trump confirmed his nomination for Scott Bessent over the weekend for the Treasury Secretary in his upcoming cabinet. Bessent is considered a fiscal hawk, targeting a budget deficit of 3% of GDP by 2028 while indicating that he is backing tariff and tax cut plans. Investors seem to be taking this nomination as mildly positive as it eases some concerns regarding the impact of Trump’s fiscal plans.
The US economic calendar is facing a bit of an odd week with the public holiday on Thursday for Thanksgiving. All US data for Thursday and Friday has been moved to Wednesday, with the Personal Consumption Expenditures (PCE) for October, the second estimate of the third quarter US Gross Domestic Product (GDP) and the weekly jobless claims as most influential data points. A rather soft start for this Monday with the Chicago Fed National Activity Index for October and the Dallas Fed Manufacturing Business Index for November due.
Daily digest market movers: Hold on to your hats
- Monday’s calendar kicks off at 13:30 GMT, with the Chicago Fed National Activity Index for October. No forecast is available, and the previous month’s number stood at -0.28.
- The Dallas Fed Manufacturing Business Index for November will follow a bit later at 15:30 GMT. There isn’t any consensus forecast either, and the October reading was at -3.
- Equities are broadly in the green across the globe. Japanese indices already closed off higher on the day, near 1% gains on average. European equities and US futures are in a positive tone, up around 0.50% on average.
- The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 56.1%. A 43.9% chance is for rates to remain unchanged.
- The US 10-year benchmark rate trades at 4.40%, sliding further away from the high printed on Friday at 4.50%.
US Dollar Index Technical Analysis: Headline risks with data releases
The US Dollar Index (DXY) eased somewhat during the Asian trading session on the back of President-elect Donald Trump’s nomination of Scott Bessent for the Treasury position. A knee-jerk reaction could be taking place as this weakness has been fully erased and might see the DXY advance further. On the upside, 107.35 remains key before looking for any levels above 108.00.
The fresh two-year high at 108.07 seen on November 22 is the first level to beat next. Further up, the 109.00 big figure level is the next one in line to look at. The support from October 2023 at 109.36 is certainly a level to watch out for on the topside.
Support comes in around 106.52, the double top from May. A touch lower, the pivotal 105.53 (April 11 high) should avoid any downturns towards 104.00. Should the DXY fall all the way towards 104.00, the big figure and the 200-day Simple Moving Average at 103.98 should catch any falling knife formation.
US Dollar Index: Daily Chart
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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