- The US Dollar is showcasing its resilience and erases a near 0.50% loss.
- Traders are using the small correction to preposition for the upcoming Fed meeting.
- The US Dollar Index starts to trade stable around 105.80.
The US Dollar (USD) is roaring again, eating up the intraday loss it took during the Asia-Pacific trading session on Monday. Although still unconfirmed, markets are speculating over the possibility that the Bank of Japan (BoJ) or its Ministry of Finance intervened in the forex market to support a rapidly weakening Japanese Yen (JPY). The USD/JPY pair slid lower from 160.17 to 154.50, a more than 3.50% appreciation of the Japanese Yen against the US Dollar.
On the economic data front, Monday presents a very calm start to the week ahead of the main event on Wednesday: the US Federal Reserve (Fed) convening for the Federal Open Market Committee (FOMC) meeting. The main element will be how Fed Chairman Jerome Powell perceives the current situation after some disappointing US economic data combined with signs of persisting price pressures.
Daily digest market movers: Plenty of questions for Powell
- Overnight, the Ministry of Finance from Japan or the Bank of Japan (BoJ) possibly intervened in the Japanese Yen, although there isn’t any official word about it. The move comes after the USD/JPY pair hit 160.00 in early trading on Monday. The BoJ intervenes by strengthening its currency in order to avoid having imported inflation from a weak currency, which could trigger more demand from abroad for goods produced locally.
- At 14:30 GMT, the Dallas Fed Manufacturing Business Index for April will be released. The previous print was -14.4.
- The US Treasury will allocate a 3-month and a 6-month bill around 15:30 GMT.
- Equities are geting a bit dispersed with European equities being unable to take over the positive mood out of Asia. Main European indices are in the red while US equities are in the green after the US opening bell.
- The CME Fedwatch Tool suggests an 88.5% probability that June will still see no change to the Federal Reserve's feds fund rate. Odds of a rate cut in July are out of the cards, while for September the tool shows a 43.6% chance that rates will be lower than current levels.
- The benchmark 10-year US Treasury Note trades around 4.64% and keeps lingering around this level.
US Dollar Index Technical Analysis: King Dollar does not go without a fight
The US Dollar Index (DXY) got trashed on Monday after the Japanese Yen rattled markets by strengthening substantially. Add in there the turning sentiment in US data since last week, with Gross Domestic Product and the Purchasing Managers Indices starting to flirt with contraction, that US exceptionalism looks bleak. The US economy is not in stagflation yet, though the window for the Fed to cut interest rates is starting to close rapidly for this year.
On the upside, 105.88 (a pivotal level since March 2023) needs to be recovered again before targeting the April 16 high at 106.52. Further up and above the 107.00 round level, the DXY index could meet resistance at 107.35, the October 3 high.
On the downside, 105.12 and 104.60 should act as support ahead of the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.40 and 104.10, respectively. If those levels are unable to hold, the 100-day SMA near 103.75 is the next best candidate.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD: Positive bias expected to continue
AUD/USD came under pressure after hitting a new peak north of the key 0.6700 the figure in a context of renewed strength in the Greenback and mixed results from the Australian labour market.
EUR/USD appears bid above the 200-day SMA
EUR/USD faced some renewed offered stance on the back of a tepid bounce in the Dollar. Despite the corrective move, the pair seems well poised to extend its bullish trend in the short-term horizon.
Gold aims to retest the $2,400 area
Gold advanced toward $2,400 on Wednesday as US Treasury bond yields pushed lower following the April inflation data. The recovery in US yields combined with the US Dollar's resilience after Jobless Claims data, however, causes XAU/USD to retreat toward $2,370 on Thursday.
Bitcoin price holds above $65.5K threshold as world’s largest futures exchange plans to launch BTC trading
Bitcoin’s (BTC) price rally on Wednesday was shocking, steered by the April Consumer Price Index (CPI) data release in the US. Speculation and market sentiment inspired the surge as traders and investors interpreted the news of softened inflation as a signal that central banks may maintain loose monetary policy.
April CPI: Worst good news ever
The monthly rise in prices based on the Consumer Price Index (CPI) came in slightly lower than projected, sending a wave of euphoria across the financial landscape. The consensus is cooling inflation puts Federal Reserve interest rate cuts back on the table.