US Dollar Sees Small Rebound Ahead of Fed

VaselineSeptember 17, 2024

0 3 minutes read

US Dollar Sees Small Rebound Ahead of Fed

Fed easing expectations continue to rise and markets are pricing in high 50bps rate cuts.
Analysts expect a 25 bps cut on Wednesday.
US retail sales data has little impact on the USD.

The US dollar was flat in early US trading on Tuesday, showing little response to the release of retail sales data as expected. The U.S. dollar index (DXY), which is a measure of the greenback against a basket of six currencies, edged slightly higher, off a year low but with a minimal recovery. Federal Reserve (Fed) easing has become more likely, with the market pricing in a 50 bps cut, while most analysts expect another 25 bps cut.

The US economy is experiencing growth above historical norms, indicating that the market is pricing in overly optimistic expectations of monetary policy easing. This uptick in optimism may be overblown, as economic data suggests the Fed is likely to maintain its current rate hike stance.

Daily Market Reasons: The US dollar is up slightly as investors still anticipate aggressive Fed easing

Market expectations for aggressive Fed easing rose ahead of Wednesday’s FOMC decision.
Most analysts anticipate a cut of 25 basis points, but a few predict a cut of more than 50 basis points.
The market is pricing in a 65% chance of a 50bps cut and 250bps easing over the next 12 months.
Aggressive market expectations are unlikely to be validated by the updated Dot Plot.
The risks of a convenient surprise from the Fed remain, but not all members are expected to support such a move.
On the data side, according to the US Census Bureau’s report on Tuesday, US retail sales rose 0.1% in August to $710.8 billion.
This followed a 1.1% rise in July and beat market forecasts, which had anticipated a 0.2% decline. However, excluding auto sales, retail sales rose 0.1 percent, below expectations for a 0.2 percent increase.

DXY Technical Outlook: DXY indicators signal bearish momentum but find support

The DXY technical indicators have dropped into a bearish zone. The index fell below its 20-day simple moving average (SMA), signaling a decline in buying momentum. The Relative Strength Index (RSI) remains below 50, indicating a bearish but somewhat flattened trend. The MACD (Moving Average Convergence Divergence) indicator is showing diminished green bars, suggesting weak buying pressure.

Support levels are at 100.50, 100.30 and 100.00, while resistance is found at 101.00, 101.30 and 101.60.

US Dollar FAQ

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 weighs on 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 17, 2024

0 3 minutes read

Daily Market Reasons: The US dollar is up slightly as investors still anticipate aggressive Fed easing

DXY Technical Outlook: DXY indicators signal bearish momentum but find support

US Dollar FAQ

Vaseline

Related Articles

Bitcoin, Ethereum fall slightly, XRP is flat on Monday as dormant Ether whale returns to action

I make $240,000 more than my husband and we keep our finances separate – why do some people combine?

NFL approves private equity investment in teams

These were the 5 biggest companies in 2009 and here are the 5 biggest companies now