US Dollar collapses with US  bond buying accelerating – Crypto News – Crypto News
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US Dollar Index flirts with nearly 2-decade highs north of 109.00 US Dollar Index flirts with nearly 2-decade highs north of 109.00

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US Dollar collapses with US  bond buying accelerating – Crypto News

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  • The US Dollar gaps opened on Thursday after a big miss on the Richmond Manufacturing Index.
  • Equity markets are steady while US bond markets are seeing substantial buying.
  • The US Dollar Index breaks lower and is on its way to test 100.

The US Dollar (USD) is on the chopping block this Thursday. The US Dollar Index (DXY) is gapping open this Thursday morning in Asia with heavy buying in the US bond market. The Greenback faces further substantial devaluation with US yields dropping like a stone, which eats into the worth or return in yield when investing in the US Dollar against a few months ago when yields were substantially higher across the yield curve in different maturities. 

On the economic front, the Jobless Claims data will be in the spotlight and might move the needle. Although a strong number might move the needle in favour of the US Dollar, rather expect markets to keep its course. Pending Home Sales is the second data point, though it is not expected that that will trigger any market reaction. 

Daily digest Market Movers: All about the Jobless ones

  • Near 13:30 GMT the Jobless Claims are coming out:
    • Initial Jobless Claims are set to jump from 205,000 to 210,000.
    • Continuing Claims are set to soar higher as well from 1,865,000 to 1,875,000.
  • At the same time, Wholesale Inventories are due to come out, heading from -0.4% to -0.2%. 
  • The Goods Trade Balance for November will be released at 13:30. Previous was at -89.8 billion USD. No forecast pencilled in. 
  • At 15:00, Pending Home Sales will come out, and are expected to jump from -1.5% to +1% for November.
  • The US Treasury is heading to markets for some cheaper funding, allocating a 4-week bill and a 7-year Note. 
  • Equities are going sideways with only one outlier: China. Both the Hang Seng and the Shenzhen Index are up over 2% after the Chinese regulator backtracked on earlier comments of a crackdown on electronic gaming and gambling companies. 
  • The CME Group’s FedWatch Tool shows that markets are pricing in an 83.5% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 16.5% expect the first cut already to take place. The uptick in favour of a rate cut comes after the big miss on expectations and further negative number in the Richmond Manufacturing Index on Wednesday.
  • The benchmark 10-year US Treasury Note trades near 3.81%, the lowest level since summer.

US Dollar Index Technical Analysis: Fingers burned

The US Dollar Index is gasping for air with US yields sinking lower across the yield curve in different maturities. Although the yields of other currencies are seeing their yields drop as well, markets are having tunnel vision with focus on the Greenback. Seeing the very thin-populated trading desks and several investors being out of the markets, not much counterweight is present to turn the ship back in favour of the Greenback for the remaining part of 2023.

First upside resistance to face is near 101.78 at the low of December 21. Although a long way to go, it looks not unthinkable that the DXY might test the descending trend line near 103.00. Depending on the catalyst that fuels the recovery in the Greenback, the 200-day Simple Moving Average (SMA) near 103.45 is firm last resistance before having more upside. 

To the downside, the pivotal level at 101.70 – the low of August 4 and 10 – is now gone and holds no bearing anymore for support as it is too far gone. The current level, near 100.82, which aligns with the bottoms from February and April, could still hold some relevance and might hold for this Thursday. Should that level snap, nothing will stand in the way of DXY heading to the sub-100 region. 

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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