US Dollar Slips Ahead of Durable Goods Data
On Tuesday, the US dollar experienced a slight retreat for the second consecutive day, with investors eagerly anticipating the release of durable goods data. This data is particularly significant as it follows contradicting statements from US Federal Reserve members regarding interest-rate cuts, leading to uncertainty in the market and potentially impacting the credibility of the central bank. Traders are keen to analyze the economic health of the US and gain clarity on the Fed’s stance through Durable Goods Orders, Consumer Confidence, and the Richmond Fed Manufacturing Survey.
Additionally, the People’s Bank of China (PBoC) strengthened the Chinese renminbi against the US dollar for the second consecutive day, influencing a decline in USD/CNH. The upcoming Durable Goods orders data for February is expected to show a rebound after January’s decline, with a focus on revisions from the previous month. Other economic indicators to be released include the US Redbook, Housing Price Index, and Consumer Confidence for March, along with the Richmond Fed Manufacturing Index.
While global equities remain relatively stable, with minor fluctuations, US equity futures show mild gains. Expectations for the Fed’s May 1 meeting suggest a high probability of keeping the fed funds rate unchanged, with minimal chances of a rate cut. The 10-year US Treasury Note trades around 4.24%, near this week’s high.
In technical analysis, the US Dollar Index (DXY) is observed to be softening towards the 104.00 mark, reflecting investor sentiment amidst the dovish Fed outlook and market challenges. The DXY may potentially retreat further to test the 104.00 level by the end of the week, with key resistance levels at 104.60 and 104.96. Support levels at the 200-day Simple Moving Average (SMA) and others are anticipated to hold steady for now.
US DOLLAR FAQS
What is the US Dollar?
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.
How do the decisions of the Federal Reserve impact the US Dollar?
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.
What is Quantitative Easing and how does it influence the US Dollar?
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.
What is Quantitative Tightening and how does it influence the 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.
