US Dollar declines to lows in over a month on weak labor market data
|- JOLTs Job Openings data for January disclosed lower-than-expected figures.
- ADP Employment Change for February also came in weak.
- Powell confirms that the Fed needs additional evidence to start cutting.
- Following the data, the DXY fell to its lowest level since early February
The US Dollar Index (DXY), trading at the 103.20 level, is experiencing losses on Wednesday. Contributing to these dynamics is the report of soft January's JOLTs Job Quits and Job Openings reports, along with the ADP Employment Change report for February. Following the testimony before the US Congress, Federal Reserve (Fed) Chair Jerome Powell confirmed that the bank isn’t ready to start cutting rates.
The US labor market data coming on Thursday and Friday will continue shaping the expectations on the Fed’s timing of the easing cycle. As for now, the consensus is that the first cut will likely come in June.
Daily digest market movers: DXY trades lower, anchored by soft labor market data
- JOLTs Job Openings for January turned out to be 8.863M, which was marginally below the expected 8.9M but was virtually identical to December's figure of 8.889M.
- ADP Employment Change for February displayed an actual increase of 140K jobs but came in below the forecast 150K growth.
- Before Congress, Powell stated that he would like to have more confidence in inflation coming down and that with “a little bit more of data”, the bank would likely be confident to start cutting.
- US Treasury bond yields continue to decline, with the 2-year yield at 4.52%, the 5-year yield at 4.08%, and the 10-year yield at 4.09%.
- On Thursday, markets will monitor weekly Jobless Claims figures, and on Friday, Nonfarm Payroll data from February.
DXY technical analysis: DXY under bearish pressure, bulls fail to recover 200-day SMA
The technical situation reflects the bears gaining ground. The indicator readings on the daily chart show the Relative Strength Index (RSI) maintaining a negative slope and existing in negative territory. Looking at the histogram of the Moving Average Convergence Divergence (MACD), its rising red bars further underline this bearish scenario. This trend is an indicator not only of the selling pressure but also of its increasing strength.
Assessing the DXY’s position in relation to its Simple Moving Averages (SMAs), the DXY is positioned below the 20, 100 and 200-day SMAs. From an overall technical standpoint, this is typically a quite bearish indication, providing further evidence of the dominance of selling pressure at present.
In this light, the short-term technical outlook for DXY appears predominantly bearish, with the selling momentum seemingly overriding the buying momentum.
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
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.
How often does the Fed hold monetary policy meetings?
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.
What is Quantitative Easing (QE) and how does it impact USD?
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.
What is Quantitative Tightening (QT) and how does it impact 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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