US Dollar in good terms to close this week off in the green
- The US Dollar prints small gains against most major G20 peers.
- Traders see Jobless Claims in line with US Jobs Report.
- The US Dollar Index pops back above 104 in a very calm market for now.
The US Dollar (USD) is holding on to gains in the US trading session. Initially hopes of a ceasefire breakthrough between Israel and Hamas made the safety-linked US Dollar retreat a touch. After Israel’s Prime Minister Benjamin Netanyahu came out late Wednesday evening with a statement rejecting the plan, however, the USD gained a bid. According to Netanyahu the complete destruction of Hamas would only take a few more months anyway.
On the economic front, the weekly US Jobless Claims are confirming the US Jobs Report from Friday. Layoffs are not taking place with big numbers (yet), which supports the Greenback into the US opening bell.
Traders looking for a longer term trade or strategy, or analysts that want to better assess the longer term inflation risks might consider taking a look at the US crop report: The United States Department of Agriculture (USDA) releases every month the World Agricultural Supply and Demand Estimates report (WASDE) where insights are given on supply, demand, bad harvests on all sorts of crops, and thus on possible weak spots that might attribute to the food inflation basket.
Daily digest market movers: US rates set to face wider spreads against competitors
- Federal Reserve Bank of Richmond President Thomas Barkin said that he wants to see sustained, broadening disinflation before cuts are considered. More months needed of disinflation.
- Good to keep an eye on: the Czech Central Bank is the first to cut rates. There was an expectation of 25 basis points, though the result is a 50 basis point cut. The Greenback is up over 0.50% against the Czech Krona as the widening rate spread between the two currencies is favoring the higher yield of the Greenback.
- This Thursday Nevada and the Virgin Islands are up for Republican Caucus elections. Another landslide victory for former US President Donald Trump would almost guarantee him the nomination as Republican Presidential Candidate for the November elections.
- At 13:30 GMT the weekly US Jobless Claims got released.
- Initial Jobless Claims went from 227,000 to 218,000.
- Continuing Jobless Claims went from 1,894 million to 1,871 million.
- Wholesale Inventories for December are expected to stay steady near 0.4%.
- At 16:30, a 4-week Note will be auctioned by the US Treasury Department.
- Richmond’s Federal Reserve President Thomas Barkin is due to speak at 17:05. A 30-year bond auction will take place around 18:00.
- Around 17:00, the United States Department of Agriculture (USDA) will release its monthly World Agricultural Supply and Demand Estimates report (WASDE).
- US equities are off to a slow start with the S&P 500 just a sigh away from the 5,000 marker. European equities are in a positive tone with the Euro Stoxx 50 up 0.80%.
- The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 81.5%, while 18.5% for a rate cut.
- The benchmark 10-year US Treasury Note trades near 4.15%,and is heading to the more elevated range of this week's trading range.
US Dollar Index Technical Analysis: US rates driving
The US Dollar Index (DXY) is slowly but surely advancing higher again with markets digesting the failed ceasefire plan that was put on the table by Hamas. The harsh rhetoric from Prime Minister Benjamin Netanyahu could mean some lingering US Dollar strength in the coming weeks. Meanwhile markets will be looking for next Republican state Caucus elections, which could lock in Trump as a favorite for November.
Should the US Dollar Index move higher again, first look for a test at the peak of Monday, near 104.60. That level needs to be broken and is more important than the 100-day SImple Moving Average snap at 104.30. Once broken above that Monday high, the road is open for a jump to 105.00 with 105.12 as key levels to keep an eye on.
The 100-day SMA (104.29) is clearly the unreliable boyfriend in the rally at the moment. A false break on Monday and no support provided on Tuesday from the moving average opens the door for a bit of a squeeze lower. The first ideal candidate for support is the 200-day SMA near 103.60. Should that give way, look for support from the 55-day SMA near 103.00 itself.
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.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
