- The US Dollar small tick higher with US officials in Russia to debate Ukraine ceasefire.
- Traders was US PPI softer and weekly Jobless Claims come in positive.
- The US Dollar Index briefly popped above 104.00 after the PPI release.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is back below 104.00 after a brief pop on the back of softer PPI numbers. Markets await comments from US diplomats visiting Russia to convene over a ceasefire deal, which already bears the green light from Ukraine. Meanwhile US President Donald Trump threatened Europe with a 200% tariffs on all wines and champagnes coming from the region.
On the economic front, a bulk load of data has been released this Thursday at 12:30 GMT. Besides the weekly US Initial Jobless Claims, the US Producer Price Index (PPI) data for February came in. Markets anticipated another soft print in the producer’s inflation reading after the softer-than-expected US Consumer Price Index (CPI) released on Wednesday, which was the case for the PPI reading as well. .
Daily digest market movers: PPI reverse impact
- Markets are seeing US yields surge to a five-day high at 4.33% after hitting 4.15% earlier this week. The move is fueled by an outflow of position from US bonds and into US equities. Yields are inversely correlated with US bond prices, so if US bond prices drop, US yields surge, supporting a stronger US Dollar.
- The weekly US Jobless Claims and US Producer Price Index (PPI) for February have been released:
- Initial Jobless Claims for the week ending March 7 came in at 220,00, below the 225,000 expected. The Continuing Jobless Claims fell to 1.870 million, below the estimate 1.900 million.
- The monthly headline Producer Price Index for February fell to 0.0%, substantially below the 0.3% estimate and the 0.4% from last month. The monthly core PPI contracted even by 0.1%, far below the 0.3% estimate.
- The yearly headline PPI fell to 3.2%, just below the consensus of 3.3%, and further down from the 3.5% seen last month. The yearly core PPI reading, excluding food and energy, came in at 3.4%, just below the 3.5% expectqtion and from 3.6%.
- Initial reaction was supportive for the US Dollar, though after an hour of the release of the numbers, the move is being reversed. Traders see evidence in the softer PPI that actually demand is failing and might deteriorate further.
- Equities are dropping lower after the PPI headlines which were coming just after US President Trump mentioning a 200% tariff on European wines and champagnes.
- The CME Fedwatch Tool projects a 97.0% chance for no interest rate changes in the upcoming Fed meeting on March 19. The chances of a rate cut at the May 7 meeting stand at 28.1% and 76.9% at June’s meeting.
- The US 10-year yield trades around 4.34%, off its near five-month low of 4.10% printed on March 4 and at a five-day high.
US Dollar Index Technical Analysis: Trump hits
The US Dollar Index (DXY) is getting some support from rising US yields after a softer US CPI report for February was released on Wednesday, opening the door for the Federal Reserve (Fed) to cut interest rates further in 2025. It all does sound contradictory, but those are the mechanics of how markets work, bringing tension with the Fed possibly cutting rates later this year while US yields are heading higher. Once the impact of US President Donald Trump’s tariffs on US inflation is clear, the direction for the US Dollar Index will become clear as well.
Upside risk is a rejection at 104.00 that could result in more downturn. If bulls can avoid that, look for a large sprint higher towards the 105.00 round level, with the 200-day Simple Moving Average (SMA) at 105.02. Once broken through that zone, a string of pivotal levels, such as 105.53 and 105.89, will present as caps.
On the downside, the 103.00 round level could be considered a bearish target in case US yields roll off again, with even 101.90 not unthinkable if markets further capitulate on their long-term US Dollar holdings.
US Dollar Index: Daily Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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