US Dollar holds firm as Fed’s two-day policy meeting gets underway – Crypto News – Crypto News
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USD Index trims gains and slips back below 111.00 USD Index trims gains and slips back below 111.00

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US Dollar holds firm as Fed’s two-day policy meeting gets underway – Crypto News

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  • The US Dollar stays strong against its major rivals early Tuesday.
  • The US Dollar Index clings to modest daily gains near 101.50.
  • US data highlighted a further improvement in consumer sentiment in July.

The US Dollar gains traction on Tuesday, with the USD index – which tracks the USD’s valuation against a basket of six major currencies – touching its highest level since July 12 above 101.5 in the early American session. The uptick confirms a bullish start to the week for the Greenback, which posted a fifth straight day of gains on Monday after outperforming its major rivals also during the previous week.

Consumer sentiment in the US continued to improve in July, with the Conference Board’s Consumer Confidence Index rising to 117.0 from 110.1 (revised from 109.7) in June.

Further details of the publication revealed that the Current Situation Index climbed to 160.0 from 155.3 and the Consumer Expectations Index advanced to 88.3 from 80.

The US Federal Reserve’s two-day policy meeting will start on Tuesday and the interest-rate decision will be announced on Wednesday.

Daily digest market movers: US Dollar awaits Fed policy announcements

  • House prices in the US rose by 0.7% on a monthly basis in May, the monthly data published by the US Federal Housing Finance Agency showed on Tuesday. This reading followed the 0.7% increase recorded in April and came in better than the market expectation of +0.2%.
  • Wall Street’s main indexes opened slightly higher on Tuesday following Monday’s choppy action. At the time of press, the Nasdaq Composite was up 0.6% on the day and the Dow Jones Industrial Average was gaining 0.1%.
  • The benchmark 10-year US Treasury bond yield rose nearly 1% on Monday and continued to push higher toward 3.9% Tuesday, helping the USD stay resilient against its rivals.
  • US S&P Global Manufacturing PMI improved to 49.0 in July’s flash estimate from 46.3 in June. The Services PMI edged lower to 52.4 from 54.4 in the same period. Finally, the Composite PMI declined to 52.0 from 53.2, pointing to an ongoing expansion in the private sector’s business activity, albeit at a softening pace.
  • Commenting on the PMI surveys’ findings, “July is seeing an unwelcome combination of slower economic growth, weaker job creation, gloomier business confidence and sticky inflation,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. “The overall rate of output growth, measured across manufacturing and services, is consistent with GDP expanding at an annualized quarterly rate of approximately 1.5% at the start of the third quarter,” he added.
  • According to the CME Group FedWatch Tool, a 25-basis-point Fed rate hike on Wednesday is fully priced in. The probability of the Fed hiking the policy rate one more time before the end of the year stands at 23%.
  • Assessing the USD’s short-term outlook, “positioning data suggests investors are running reasonably large short Dollar positions into this week’s Fed, ECB and BoJ policy meetings,” noted economists at ING. “We do like a weaker USD later this year, but the Dollar’s recent corrective rally might endure this week if the Fed hangs onto its tightening bias.”
  • Following Monday’s disappointing PMI surveys from Germany, the IFO Institute’s monthly survey showed Tuesday that the Business Climate Index declined to 87.3 in July from 88.6 in June. This reading came in weaker than the market expectation of 88.0.
  • Elaborating on the survey’s findings, the IFO surveys head, Klaus Wohlrabe, told Reuters that the German Gross Domestic Product (GDP) was likely to shrink in the third quarter, forcing the Euro to stay under pressure.
  • The German HOCB Composite PMI fell to 48.3 in Early July from 50.6 in June. Commenting on the data, “There is an increased probability that the economy will be in recession in the second half of the year,” said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB).

Technical analysis: US Dollar Index approaches key resistance

The US dollar index (DXY) closes in at 101.70, where the 20-day Simple Moving Average (SMA) aligns as dynamic resistance. Meanwhile, the Relative Strength Index (RSI) indicator on the daily charts advanced to 50, suggesting that DXY is about to turn bullish.

Once above 101.70, 102.00 (static level, former support) could act as strong resistance. A daily close above this level could bring in additional buyers and open the door for an extended uptrend towards 102.50-102.60 (50-day SMA, 100-day SMA).

Looking south, first support is located at 101.00 (former resistance, static level) before 100.50 (static level) and 100.00 (psychological level, static level).

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 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.

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 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 generally positive for the US Dollar.

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