- The US Dollar trades softer, uncertain where to go next.
- Tariff headlines create fog and uncertainties on where to go next for markets.
- The US Dollar Index (DXY) holds ground above 108.00 while looking for direction amidst all these tariff headlines.
The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, gears up for Tuesday’s data release after first hitting 109.00 before falling back to the lower 108.37 level in European trading. The DXY trades around 108.30 at the time of writing. Markets are reacting to a mixture of headlines with a sigh of relief from Mexico and Canada, which saw the imposition of US tariffs delayed. Meanwhile, China has retaliated against US President Trump’s tariffs by issuing its own levies over US imported goods.
The economic data calendar is taking its shape in the runup towards Friday’s Nonfarm Payrolls data. The US JOLTS Job Openings report will be released later in the day and could give more insights into the tightness of the labor market. In addition, two Federal Reserve (Fed) speakers, Atlanta Fed President Raphael Bostic and San Francisco Fed President Mary Daly, will speak and might leave comments for markets to consider.
Daily digest market movers: JOLTS ahead
- China has announced this Tuesday a 15% levy on less than $5 billion in US energy imports, such as Coal and Liquified Natural Gas (LNG), and a 10% fee on American Oil and agricultural equipment, and it will also investigate Google for alleged antitrust violations, Bloomberg reports. Meanwhile, Canada and Mexico are seeing US-imposed tariffs being delayed thanks to their actions to comply with US President Donald Trump.
- At 15:00 GMT, the monthly Factory Orders for December are due. Expectations are for a further decline of -0.7% from -0.4% in the previous month.
- At the same time, the TechnoMetrica Institute of Policy and Politics (TIPP) will release its monthly Economic Optimism reading for February. The consensus is for an uptick to 53, coming from 51.9.
- The US JOLTS Job Openings for December will be released as well. A small decrease to 8 million job openings is expected, down from 8.098 million in November.
- The Federal Reserve has two speakers lined up as well:
- Atlanta Fed President Raphael Bostic moderates a conversation with Atlanta Mayor Andre Dickens at a National Housing Crisis Task Force meeting at Atlanta at 16:00 GMT.
- San Francisco Fed President Mary Daly will participate in the Walter E. Hoadley Annual Economic Forecast panel, hosted by the Commonwealth Club World Affairs of California at 19:00 GMT.
- Equities are mixed with some minor gains and losses in both European indices and US futures.
- The CME FedWatch tool projects an 86.5% chance of keeping interest rates unchanged in the Fed’s next meeting on March 19.
- The US 10-year yield is trading around 4.567%, up from its fresh yearly low at 4.46% seen Monday.
US Dollar Index Technical Analysis: Clouded judgement
The US Dollar Index (DXY) is all over the place, though zooming out, actually going nowhere. A range is defined as 107.00 on the downside and 110.00 on the upside. Expect to see the DXY keeping range trading between these two bigger levels for now.
On the upside, the first barrier at 109.30 (July 14, 2022, high and rising trendline) was briefly surpassed but did not hold on Monday. Once that level is reclaimed, the next level to hit before advancing further remains at 110.79 (September 7, 2022, high).
On the downside, the 55-day Simple Moving Average (SMA) at 107.75 and the October 3, 2023, high at 107.35 acts as a double support to the DXY price. For now, that looks to be holding, though the Relative Strength Index (RSI) still has some room for the downside. Hence, look for 106.52 or even 105.89 as better levels.
US Dollar Index: Daily Chart
US Dollar FAQs
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 notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took 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 went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly 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 from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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