US Dollar defends its ground at the start of the week
- The US Dollar Index trades above 104.00 early Monday.
- Composite PMI shows accelerating growth in March.
- Fed’s Bostic warns of lingering economic uncertainty.
- Greenback is still recovering from recent multi-month lows.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, held its upward momentum on Monday, tallying a four-day recovery. Strong S&P Services PMI as well as caution from Atlanta Federal Reserve President Raphael Bostic is benefiting the buck.
Daily digest market movers: US Dollar rises as economic signals clash with Fed caution
- S&P Global Composite PMI rose sharply, showing improved economic momentum in March, led by robust service sector growth.
- Manufacturing PMI disappointed, slipping into contraction territory below 50 and falling short of market expectations.
- Services PMI exceeded forecasts, offering optimism about consumer demand and economic resilience as it rose to 54.
- Atlanta Fed President Raphael Bostic emphasized ongoing uncertainty, stating that inflation progress may be slower than previously projected.
- On the DXY's daily chart the Fed's sentiment index has significantly rise above hawkish territory which also add momentum to the USD.
- Bostic trimmed his 2025 rate cut expectations, citing persistent price pressure and trade-related risks.
- US trade tensions were flagged as a concern with Bostic noting their potential drag on monetary policy decisions.
Technical analysis: DXY shows signs of base building
The US Dollar Index has marked a four-day winning streak, though the rally has stalled just below the 104.00 threshold. The Relative Strength Index (RSI) continues to climb gradually, while the Moving Average Convergence Divergence (MACD) histogram narrows, indicating reduced bearish momentum.
Key resistance lies at 104.20, with additional levels at 104.80 and 105.20, while support remains firm at 103.40, followed by 102.90.
A bearish crossover between the 20-day and 100-day Simple Moving Averages (SMA) near 105.00 adds to technical caution and may be interpreted as a sell signal. However, the DXY index appears poised to recover further from its March lows, supported by improving service sector strength.
Interest rates FAQs
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.
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.
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.
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
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
