US Dollar remains pressured ahead of key events
- DXY dips toward session lows as traders brace for Trump-Putin meeting.
- US Retail Sales disappoint, reinforcing concerns over economic momentum.
- Federal Reserve decision looms with markets positioning cautiously.
- Technical indicators suggest potential stabilization after sharp losses.
The US Dollar remains under pressure at the start of the week, drifting lower as investors digest softer-than-expected Retail Sales data and brace for key political developments. On Tuesday, President Donald Trump is set to engage in discussions over Ukraine with Russian President Vladimir Putin. Meanwhile, bond yields are directionless as traders await the Federal Reserve's (Fed) policy update on Wednesday, a crucial event that will shape market sentiment moving forward.
Daily digest market movers: Geopolitical tensions and economic uncertainty ahead of Fed meeting
- President Trump confirmed he will engage in talks with Putin on Tuesday, emphasizing that discussions will center around land agreements and resource allocations in Ukraine. The US leader suggested that a resolution is possible, though uncertainties remain.
- US Retail Sales figures for February came in weaker than forecast, exacerbating concerns over consumer spending trends.
- Monthly Retail Sales rose just 0.2%, falling short of the projected 0.7% increase, following a downward revision for January’s contraction to -1.2% from -0.9%.
- Annualized sales growth slowed to 3.1%, down from a revised 3.9% (previously 4.2%), signaling a cooling in consumer demand.
- The CME FedWatch Tool indicates an overwhelming consensus that the Fed will maintain current interest rate levels at Wednesday’s meeting. However, expectations for a potential rate cut in May have inched higher, reaching nearly 30%.
- US Treasury yields exhibit a mixed performance ahead of the Fed’s decision as traders assess the balance between slowing economic indicators and inflationary risks.
Technical outlook: Stabilization in sight?
The US Dollar Index (DXY) struggles to hold ground below 104.00, but with momentum indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) signaling oversold conditions, a temporary relief bounce could materialize. Key resistance stands at 104.50, while immediate support rests near 103.50. Despite some signs of stabilization, broader sentiment remains fragile amid lingering geopolitical and economic uncertainty.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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