US Dollar continues recovering ahead of the weekend
- The US Dollar Index rises for the third session in a row.
- Geopolitical risks keep the Greenback in demand.
- Fed reiterates commitment to 2025 rate cuts, US yields slip but the Dollar still gains.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of currencies, is ticking higher on Friday, helped by a wave of geopolitical unease. Despite a retreat in Treasury yields and the Federal Reserve’s (Fed) reaffirmation of its cutting path for 2025, the Greenback gains modest ground. The index attempts to break out of the March low range for the third straight day.
Daily digest market movers: US Dollar holds gains despite lower yields, geopolitical jitters
- Fed rate expectations remain steady, with a strong likelihood that rates will stay unchanged in May and move lower by midyear.
- US 10-year yields retreat, now around 4.20%, moving closer to levels last seen in early March, as investors lean into bonds.
- Fed Governor Christopher Waller supports maintaining the current balance sheet reduction pace, reinforcing the central bank’s steady tightening stance.
- Despite softer yields, the US Dollar gains as investors weigh ongoing global risk events.
- Market participants eye geopolitical hotspots, including ongoing instability in the Middle East and Eastern Europe, which continue to support the Greenback.
Technical analysis: DXY eyes rebound despite bearish signals on moving averages
The US Dollar Index is showing early signs of recovery from its March lows, supported by defensive flows and stable Fed guidance. The Relative Strength Index (RSI) is gradually climbing, while the Moving Average Convergence Divergence (MACD) histogram shows easing downside momentum.
Immediate resistance stands near 104.20, followed by 104.80 and 105.20, while 103.40 serves as nearby support, ahead of 102.90. A bearish crossover between the 20-day and 100-day simple moving averages near 105.00 acts as a potential technical sell signal. However, with sentiment stabilizing, the index looks poised to recover further from its March base.
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.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
