US Dollar got hurt by weak ISM PMIs, eyes on Jobless Claims on Thursday

ISM Services PMI figures from March were weaker than expected. ADP numbers were strong.
The odds of an interest rate cut somewhat increased for the June Fed meeting.
The focus is set on Friday’s Nonfarm Payroll report.

Patricio Martín FXStreet

The US Dollar Index (DXY) is currently trading at 104.3, reflecting a daily decline. Despite the Federal Reserve's (Fed) cautious stance, consensus forecasts indicate that the beginning of the easing cycle will begin in June. That being said, mixed data from the US economy may make Fed officials think twice about rushing to start cutting.

The US labor market remains resilient as well as the overall economy, with little signs of a slowdown. In case the economy doesn’t show conclusive evidence of cooling down, the Fed might consider delaying the start of the easing cycle.

Daily digest market movers: DXY impacted by service sector slowdown, Fed remains cautious

The Institute for Supply Management (ISM) released a report noting that business activity in the US service sector expanded in March, but growth was slower than the previous month. The ISM Services Purchasing Managers Index (PMI) decreased to 51.4 from February's 52.6.
The reported YoY decrease in the Prices Paid Index from 58.6 to 53.4 suggests an overall declining trend in inflation.
The Employment Index noted a slight yearly increase, up to 48.5 from an earlier 48.0, continuing to signify a decline in payrolls within the service sector.
Data from Automatic Data Processing (ADP) showed private sector employment in the US increased in March with 184,000 new jobs, which was an improvement upon the revised February figures of 155,000 from 140,000.
Cleveland Fed President Loretta Mester and San Francisco Fed President Mary Daly suggested three potential rate cuts in 2024 but underscored that it's too soon to act.
On Tuesday, Jerome Powell commented that there was no rush to cut rates and that the bank remains data-dependent.
June has not been ruled out for the initial cut, with current market odds still favoring a rate cut at 68%.

DXY technical analysis: DXY grapples with slight selling pressure, overall bullish sentiment remains

In the DXY technical landscape, the Relative Strength Index (RSI), although on a negative slope, is still situated in positive territory, implying a stalling upward momentum. However, the recent decrease in green bars on the Moving Average Convergence Divergence (MACD) histogram echoes a similar sentiment, suggesting a subtle shift in the dynamics from buying to selling pressure.

Still, on an encouraging note, the index continues to trade above the critical support levels dictated by its 20, 100, and 200-day Simple Moving Averages (SMAs). Despite a short-term negative outlook, this notably upbeat stance suggests that the bulls are still in control over the longer horizon.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

Author

Patricio Martín

FXStreet

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

AUD/USD breaks below 0.7000 ahead of inflation data

AUD/USD has accelerated its downward trend on Tuesday, breaching below the key 0.7000 yardstick ahead of the opening bell in Asia on Wednesday. Indeed, spot has retreated for the second day in a row despite the hawkish hike by the RBA early on Tuesday and in response to the continuation of the move higher in the Greenback. Looking ahead, all the attention will be on the release of Australia’s inflation data on Wednesday.

USD/JPY consolidates near 157.50 as a bullish USD counters intervention risks

USD/JPY struggles to capitalize on the overnight bounce from a one-week low, consolidating around 157.50 in the Asian session on Tuesday. Trump's concerns about the Japanese Yen's weakness fueled speculation about another US-Japan joint intervention. This, along with the hawkish BoJ, underpins the JPY and caps the currency pair. Meanwhile, rising Fed rate-hike bets and oil-driven inflation fears continue to push US bond yields to multi-year highs, keeping the US Dollar pinned near a two-month high and supporting the pair.

Gold trims gains; back toward $4,150

Gold now surrenders some of its initial advance and retests the $4,150 zone per troy ounce on Tuesday. Meanwhile, the move higher in the yellow metal comes despite the firmer US Dollar and rising US Treasury yields across the board, while escalating geopolitical tensions appear to limit the downside potential.

XRP advances within a robust technical structure

Ripple (XRP) shows signs of stabilizing after reclaiming support at $1.50 on Tuesday. A robust technical structure underpins the token’s short to medium-term bullish outlook. Still, XRP is not out of the woods yet, as profit-taking and buyer exhaustion could weigh on price action and extend the recent correction from September highs around $1.66.

RBA recap: Rate hikes are on the table as demand stays too strong

The Reserve Bank of Australia unanimously tightened monetary policy, warning that inflation remained too high and that several upside risks had begun to materialise. Governor Michele Bullock said the Board would raise rates again if necessary.

Silver is more volatile than Gold ahead of PCE and NFP. This chart shows the positioning gap

The market’s attention is focused on American data this week, but there’s something only those with a trained eye may be looking at: Gold and Silver positioning gap. Financial markets are moving on fears, mostly related to persistently high energy prices driven by the Middle East war. Sure, the US Dollar (USD) is strong, but at what cost?