- Initial Jobless Claims released by the US Department of Labor were slightly higher than expected.
- Unit Labor Costs from Q4 also came in weak.
- Markets await February’s Nonfarm Payrolls figures on Friday.
The US Dollar Index (DXY) dipped to the 103.1 level on Thursday, so far tallying a near 0.60% weekly decline. This downward movement can be attributed to the rise in Initial Jobless Claims for the week ending March 2 and the lower-than-expected Unit Labour Costs from Q4. On Friday, data on the Unemployment Rate, Average Hourly Earnings and NonFarm Payrolls from February arrive, and they will likely set the pace of the DXY in the short term.
In case the US reports additional labor market data on Friday, hopes of rate cuts arriving soon may add further pressure to the Greenback.
Daily digest market movers: DXY sees drop in soft labor market figures
- ADP jobs report hints at fewer than anticipated jobs, but JOLTS suggests a tight labor market.
- For the week that ended on March 2, Initial Jobless Claims were mildly above the consensus at 217,000.
- Q4 Unit Labour Costs from the US were lower than anticipated, rising by 0.4% vs. the estimate of 0.6%.
- US Treasury bond yields continue to decline with 2-year yield falling to 4.54%.
- Markets still see the start of the easing of the Federal Reserve (Fed) in June. However, Friday’s data will shape those expectations.
DXY technical analysis: DXY bears advance as buyers are nowhere to be found
The DXY's technical aspects paint a rather bearish picture. The negative slope and territory of the Relative Strength Index (RSI) indicate weakening buying momentum. Concurrently, the Moving Average Convergence Divergence (MACD) is displaying red bars, a sign that sellers are taking control of the DXY's direction.
In terms of price movement, the currency index stands below its 20,100 and 200-day Simple Moving Averages (SMAs). This position shows a broad-scale bearish outlook, as it typically signals an overall selling trend.
US Interest rates FAQs
What are interest rates?
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
How do interest rates impact currencies?
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
How do interest rates influence the price of Gold?
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
What is the Fed Funds rate?
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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