US Dollar consolidates gains as focus shifts to US data – 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 consolidates gains as focus shifts to US data – Crypto News

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  • US Dollar stays resilient against its rivals at the beginning of the week.
  • The US Dollar Index trades at multi-week highs following last week’s rally.
  • Hawkish Fed bets continue to provide a boost to US Dollar.

The US Dollar (USD) preserves its strength to start the new week despite subdued trading action amid the Memorial Day holiday in the United States (US). The US Dollar Index (DXY), which tracks the USD’s performance against a basket of six major currencies, holds steady above 104.00 after having gained 1% last week.

Following the latest upbeat macroeconomic data releases from the US, investors reassess the Fed’s policy outlook and now see a stronger chance of the US central bank raising the key interest rate one more time in June. In turn, the USD continues to find demand on the back of rising US Treasury bond yields.

In the second half of the week, the ISM Manufacturing pmiADP Employment Change and the US Bureau of Labor Statistics’ May jobs report will be watched closely by market participants.

Daily digest market movers: US Dollar stays resilient against its rivals

  • The US Bureau of Economic Analysis (BEA) reported on Friday that inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, rose to 4.4% on an annual basis in April from 4.2% in March.
  • The annual Core PCE Price Index, the Fed’s preferred gauge of inflation, edged higher to 4.6%, compared to the market expectation of 4.6%.
  • Further details of the BEA’s publication showed that Personal Income increased 0.4% on a monthly basis while Personal Spending rose 0.8%.
  • Cleveland Fed President Loretta Mester told CNBC on Friday that PCE Price Index data underscore the slow progress on inflation. “It’s important for the Fed not to under tighten the monetary policy,” Mester added.
  • According to the CME Group FedWatch Tool, markets are currently pricing in a less than 40% probability of the Fed leaving its policy rate unchanged at the upcoming meeting.
  • On Sunday, US President Joe Biden and Republican House Speaker Kevin McCarthy reached an agreement to temporarily suspend the debt-limit to avoid a US debt default. The House of Representatives and Senate still need to approve the deal, which would suspend the $31.4 trillion debt-ceiling until January 1, 2025, in coming days.
  • Bond and stock markets in the US will remain closed on Monday.
  • On Tuesday, the Conference Board will release the Consumer Confidence Index data for May.

US Dollar Index technical analysis: Bullish outlook remains unchanged in the near term

The Relative Strength Index (RSI) indicator on the daily charts stays near 70, suggesting that the US Dollar Index (DXY) could turn technically overbought in the near term. In case DXY stages a technical correction, 104.00 (Fibonacci 23.6% retracement of the November-February downtrend) aligns as key support. A daily close below that level could attract USD sellers and open the door for an extended slide toward 103.00, where the 100-day Simple Moving Average (SMA) is located.

If DXY continues to use 104.00 as support, buyers are likely to remain interested. Additionally, the bullish cross seen in the 20-day and the 50-day SMAs points to a build-up of momentum. On the upside, 105.00 (psychological level, static level) aligns as next resistance before 105.60 (200-day SMA, Fibonacci 38.2% retracement).

US Dollar FAQs

What is the US Dollar?

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 date 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.

How do the decisions of the Federal Reserve impact the US Dollar?

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.

What is Quantitative Easing and how does it affect the US Dollar?

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 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.

What is Quantitative Tightening and how does it influence the 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 generally positive for the US Dollar.

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