US Dollar weaker as Fed Bostic and Barkin make dovish statements

The Greenback trades in the red after a rise in jobless numbers.
Traders will be looking for clues and guidance from Fed Chairman Powell.
The US Dollar Index is steady in the 105-area and looks to be awaiting a catalyst for a move in any direction.

The US Dollar (USD) is easing further in the aftermath of higher jobless numbers and dovish comments from Atlanta Federal Reserve President Raphael Bostic and Thomas Barkin from the Richmond branch. With this, the Greenback looks unable to erase last weeks weakness and is in the US Dollar Index (DXY) only halfway through its recovery. Unless US Federal Reserve Chairman Jerome Powell can save the day later this Thursday, it looks like the US Dollar will be unable to fully recover from last weeks incurred pain.

On the economic data front, traders will be looking for clues again from the US Federal Reserve speakers that are on the docket for this Thursday. The weekly jobless claims had an uptick again and confirm that the US job market is starting to show signs of fatigue. That could be an early sign on the wall and could send the US Dollar weaker against most major currencies.

Daily digest: US Dollar battered by Barkin and Bostic

The US 10-year bond auction on Wednesday was quite a success: The bond got placed at 4.519%, from earlier 4.610%. The Bid/Cover Ratio was at 2.45 against 2.50 previous. So for every tranche there was more demand than needed to get the bond filled.
Philadelphia Fed president Patrick Harker said early on Thursday that rates should stay higher for longer and that the fight against inflation is still ongoing.
Early morning comments from European Central Bank’s Luis De Guindos, made it clear he thought rate cuts were too premature to be factored in, and saw risk for an inflation surge in the next months.
Near 13:30 GMT the Jobless Claims came out:
1. Initial Jobless Claims went from 220,000 to 217,000.
2. Continuing Jobless Claims went from 1.812 million to 1.834 million.
Atlanta Federal Reserve President Raphael Bostic and Thomas Barkin from the Richmond delivered dovish comments by saying that the US Fed rate is restrictive enough and that a slowdown is coming soon.
The US Treasury will have busy days as well and will be more than happy to do two bond placements at some less elevated rate levels: a 4-week bill and a 30-year bond auction are due to take place at 16:30 GMT and 18:00 GMT.
To close the day off, traders will brace for comments from US Federal Reserve Chairman Jerome Powell around 19:00 GMT, at a panel discussion on monetary policy for the IMF.
Equities are painting a very binary view this Thursday: Japan equities are in the green with over 1% profit for the Nikkei and the Topix. The Chinese Hang Seng is flat, together with European and US equities.
The CME Group’s FedWatch Tool shows that markets are pricing in a 90.4% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
The benchmark 10-year US Treasury yield trades at 4.55%, after a successful allocation by the US Treasury earlier on Wednesday.

US Dollar Index technical analysis: DXY slides on dovish Fed comments

The US Dollar has partially made good after its weak performance at the end of last week. That said, the recovery does not look strong enough for the US Dollar Index (DXY) to be able to recoup all the losses incurred by Friday.

The DXY was looking for support near 105.00, and has been able to bounce ahead of it. Any shock events in global markets could spark a sudden turnaround and favour safe-haven flows into the US Dollar. A rebound first to 105.85 would make sense, a pivotal level from March 2023. A break above could mean a revisit to near 107.00 and recent peaks printed there.

On the downside, 105.10 is still acting as a line in the sand. Once the DXY slides back below that, a big air pocket is opening up with only 104.00 as the first big level where the 100-day Simple Moving Average (SMA) can bring some support. Just beneath that, near 103.50, the 200-day SMA should provide similar underpinning.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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.

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