US Dollar steady while peace talks in Turkey are breaking down
- The US Dollar trades steady lower on Thursday despite a slew of key US economic data released.
- Markets see talks in Turkey between Russia and Ukraine fall apart before even starting.
- The US Dollar Index holds just below 101.00 and could move either way after a volatile Wednesday.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is catching its breath and trades slightly lower just below the 101.00 level at the time of writing on Thursday, ahead of a chunky United States (US) economic calendar. The Greenback is not really moving on the back of the geopolitical defusing by US President Donald Trump, who commented during his Middle Eastern trip that nuclear talks with Iran have good hopes, while both Yemen and Syria deserve a second chance.
After Wednesday's sharp volatility affecting the Korean Won (KRW), traders are looking to Asia for possible more currency hiccups and evidence that the Trump administration is seeking a currency deal with countries in the region to devalue the Greenback.
Meanwhile in Turkey it appears talks between Russia and Ukraine are not going well. Even before the two negotiating teams have joined, talks seem to already have been broken down. US President Trump meanwhile said on Air Force One that peace will not come if Trump and Russian President Vladimir Putin do not meet, Bloomberg reports.
Daily digest market movers: Going Nowhere
- The US economic calendar kicked off at 12:30 GMT with a string of data:
- Weekly Initial Jobless Claims came in at 229,000, as expected and from 228,00 in the previous week. The Continuing Claims came in softer at 1.881 million, beating the 1.89 million estimate and from 1.879 million previously.
- The NY Empire State Manufacturing Index for May only fell to -9.2, beating the expected -10, from -8.1 the previous month. The Philadelphia Fed Manufacturing Survey for May was a surprise -4, far better than the expected -11 and from -26.4 in April.
- The monthly April headline Producer Price Index contracted by -0.5%, where an increase by 0.2% was expected and from the 0.4% decline in March. The core PPI contracted by -0.4%, missing the 0.3% estimate and compared to -0.1% previously.
- April Retail Sales fell to just 0.1%, a small beat on the 0% estimate and compared to the 1.5% previous release. Retail Sales excluding Cars and Transportation only increased by 0.1%, missing the 0.3% estimate and compared to the 0.5% rise in March. That same 0.5% for March got revised up to 0.8%.
- Federal Reserve Chairman Jerome Powell delivered a speech about the Fed's framework review at the Thomas Laubach Research Conference in Washington DC. Though the Fed Chairman did not comment on any near-term economic outlook or rate path.
- The monthly Industrial Production data for April fell to 0.0%, a miss on the estimated 0.2%, though up from the -0.3% in March.
- At 18:05 GMT, Federal Reserve Bank Vice Chair for Supervision Michael Barr will deliver opening remarks (via pre-recorded video) at the 2025 Northeast/Mid-Atlantic Small Business Credit Symposium.
- Equities are slumping across the board on Thursday, though nowhere more than 1% losses to report from Asia, across Europe, and into the US equity futures markets.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in June’s meeting at just 8.2%. Further ahead, the July 30 decision sees odds for rates being lower than current levels at 38.6%.
- The US 10-year yields trade around 4.53%, and keep ticking higher, nearing a one-month high.
US Dollar Index Technical Analysis: Stuck between two forces
The US Dollar Index saw the pivotal technical level at 100.22 hold firmly, delivering a small bounce for the Greenback on Wednesday. With the slide below 101.00, the DXY looks well-positioned to go either way, driven by the US economic data releases later this Thursday. A return to 101.90 could materialize, while the downside support at 100.22 is not far off.
On the upside, 101.90 is the first big resistance again. It already acted as a pivotal level throughout December 2023 and as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024. In case Dollar bulls push the DXY even higher, the 55-day Simple Moving Average (SMA) at 102.06 comes into play.
On the other hand, the previous resistance at 100.22 is now acting as firm support, followed by the year-to-date low of 97.91 and the pivotal level of 97.73. Further below, a relatively thin technical support comes in at 96.94 before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.
US Dollar Index: Daily Chart
Banking crisis FAQs
The Banking Crisis of March 2023 occurred when three US-based banks with heavy exposure to the tech-sector and crypto suffered a spike in withdrawals that revealed severe weaknesses in their balance sheets, resulting in their insolvency. The most high profile of the banks was California-based Silicon Valley Bank (SVB) which experienced a surge in withdrawal requests due to a combination of customers fearing fallout from the FTX debacle, and substantially higher returns being offered elsewhere.
In order to fulfill the redemptions, Silicon Valley Bank had to sell its holdings of predominantly US Treasury bonds. Due to the rise in interest rates caused by the Federal Reserve’s rapid tightening measures, however, Treasury bonds had substantially fallen in value. The news that SVB had taken a $1.8B loss from the sale of its bonds triggered a panic and precipitated a full scale run on the bank that ended with the Federal Deposit Insurance Corporation (FDIC) having to take it over.The crisis spread to San-Francisco-based First Republic which ended up being rescued by a coordinated effort from a group of large US banks. On March 19, Credit Suisse in Switzerland fell foul after several years of poor performance and had to be taken over by UBS.
The Banking Crisis was negative for the US Dollar (USD) because it changed expectations about the future course of interest rates. Prior to the crisis investors had expected the Federal Reserve (Fed) to continue raising interest rates to combat persistently high inflation, however, once it became clear how much stress this was placing on the banking sector by devaluing bank holdings of US Treasury bonds, the expectation was the Fed would pause or even reverse its policy trajectory. Since higher interest rates are positive for the US Dollar, it fell as it discounted the possibility of a policy pivot.
The Banking Crisis was a bullish event for Gold. Firstly it benefited from demand due to its status as a safe-haven asset. Secondly, it led to investors expecting the Federal Reserve (Fed) to pause its aggressive rate-hiking policy, out of fear of the impact on the financial stability of the banking system – lower interest rate expectations reduced the opportunity cost of holding Gold. Thirdly, Gold, which is priced in US Dollars (XAU/USD), rose in value because the US Dollar weakened.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
