US dollar falls on weak labor and inflation data

VaselineSeptember 12, 2024

0 3 minutes read

US dollar falls on weak labor and inflation data

Weak labor data sent the US dollar lower during Thursday’s session.
Initial jobless claims remained at 230,000, indicating a persistent labor market.
The PPI was below expectations, signaling a potential easing in inflation, which also contributed to the USD’s downside.

The U.S. dollar index, which measures the USD against a basket of six currencies, posted daily losses after weak jobs and inflation data.

Despite the positive economic indicators, current market assessments may be too optimistic. Recent data shows that the US economy remains robust, expanding at a pace that exceeds expectations.

Daily Market Reasons: DXY Down After Inflation and Labor Data

The US dollar fell against its main rivals amid dovish signals from the latest US labor market and inflation reports.
Initial jobless claims, a proxy for US layoffs, rose to 230,000 in the week ended Sept. 7, according to estimates, and slightly above the upwardly revised 228,000 from the previous week.
The seasonally adjusted advance unemployment rate was unchanged at 1.2% and the 4-week moving average rose to 230.75K.
The producer price index (PPI) for US final demand rose 2.2% from a year ago in July, below the market forecast of 2.3% and the previous increase of 2.7%.
Core annual PPI rose 2.4%, missing the consensus estimate of 2.7%. On a monthly basis, the PPI rose by 0.1%, while the core PPI remained flat.
The CME FedWatch tool indicates a 13% probability that the Fed will cut interest rates by 50 basis points in September, unchanged from the PPI release.
These reports suggest that the US labor market remains resilient despite headwinds, while inflationary pressures may moderate, supporting the Fed’s accommodative stance.

DXY Technical Outlook: DXY retakes downside, breakout improves outlook

Technical analysis indicators for the DXY index have resumed their downtrend in negative territory. However, on Tuesday, the index regained its 20-day simple moving average (SMA) at around 101.60. This breakout has improved the short-term outlook, and the immediate task for buyers is to maintain this level. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators remain in negative territory, suggesting bearish momentum. However, both indicators are showing some signs of upward movement, which could indicate a potential trend reversal.

Supports are located at 101.60, 101.30 and 101.00. Resistances are found at 101.80, 102.00 and 102.30.

Frequently asked questions about US dollars

The US dollar (USD) is the official currency of the United States of America and the “de facto” currency of a significant number of other countries where it is found in circulation alongside local banknotes. It is the world’s most heavily traded currency, accounting for more than 88% of total global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, as of 2022. After World War II world, the USD has taken over from the British pound as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement in 1971, when the gold standard disappeared.

The most important factor influencing the value of the US dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability (inflation control) and to promote full employment. Its main tool for achieving these two objectives is the adjustment of interest rates. When prices rise too fast and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the value of the USD. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which affects interest rates.

In extreme situations, the Federal Reserve can also print more dollars and engage in 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 when credit has dried up because banks will not lend to each other (for fear of default). It is a last resort when simply lowering interest rates is unlikely to achieve the desired result. It was the Fed’s preferred weapon to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy US government bonds, mainly from financial institutions . QE usually leads to a weaker US dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing bonds it holds in new purchases. It is usually positive for the US dollar.

VaselineSeptember 12, 2024

0 3 minutes read

Daily Market Reasons: DXY Down After Inflation and Labor Data

DXY Technical Outlook: DXY retakes downside, breakout improves outlook

Frequently asked questions about US dollars

Vaseline

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