US Dollar near session’s low as traders await US consumer data to hit the wires – Crypto News

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• US Dollar pairs back a bit of incurred losses just hours before the US Consumer Price Index is set to come out.
• Traders have already priced in a drop in US inflation numbers and assume no rate hike for this week from the US Federal Reserve.
• The US Dollar Index holds just above 103.20 and broke Monday’s low, continuing its declining pattern.

The US Dollar (USD) is trying to pair back some of its incurred losses on Tuesday, with most notable losses for the Greenback against Korean Won – down 1% earlier intraday – and UK’s Pound Sterling – down earlier 0.60%. The weaker USD has been influenced by a surprise rate cut by China People’s Bank Of China (PBOC) cutting its 7-day Reverse Repo rate to 1.9% from 2% and committing to further stimulus for the much-battered construction sector. Additionally to the move, traders are reducing a bit of risk against the Greenback, perhaps anticipating a lower-than-expected US Consumer Price Index (CPI) inflation print later in the trading session.

For that US CPI release, the market is expecting a drop on all fronts, with the most notable being the headline CPI YoY figure, which is set to drop from previous 4.9% to 4.1%, according to market consensus. The lowest estimate for that number is 4.0% while the highest estimate is for 4.3%. Expect to see a big move down in the US Dollar Index the actual number should come out at 4.1% or lower. An inverse result of course should US CPI come out at 4.3% or higher, the US Dollar would rally higher in the likelihood that the fed will need to do more rate hikes than projected at the moment.

Daily digest: US Dollar at pivotal moment

• The US National Federation of Independent Businesses (NFIB) printed its Small Business Optimism which jumped to 89.4 from 89 previous. Expectation was for 88.5.
• US Consumer Price Index numbers are set to come out on Tuesday at 12:30 GMT, with headline and core figures for monthly and annual prints. Overall CPI MoM expected at 0.2%, coming from 0.4%, while the YoY is expected to fall from 4.9% to 4.1%. The core inflation MoM should remain steady at 0.4% while YoY drops from 5.5% to 5.3%.
• The Federal Open Market Committee (FOMC) is set to begin its two-day meeting where Federal Reserve board voters will make a rate decision announced on Wednesday.
• In the run-up to the Fed rate decision announcement on Wednesday with the speech by US Federal Reserve Chairman Jerome Powell, a few analysts have warned that the dot-plot or Phillips curve could hold a hawkish surprise and might trigger kneejerk reaction in the Greenback. . The Phillips curve or dot-plot is where each Fed member pencils in their projection on where rates should go in the nearterm.
• The US Treasury will head to the markets again to allot a 30-year and 1-year bond auction.
• China weighs broader stimulus with asset support and more rate cuts after it announced a rate cut in its 7-day Reverse Repo Rate from 2.0% to 1.9%.
• US equity futures rallied substantially on Monday and the party does not look to be over. All major indices in Asia and Europe are in the green while US equity futures are firmly in the green again. Japan’s Nikkei prints even a 33-year high.
• The US Treasury had to pay a higher yield in order to get its auction allocated in the market on Monday evening. The yield came out at 3.791%, while 3.776% was expected.
• The CME Group FedWatch Tool shows that markets are pricing in a 27% chance of rate hike for June and an 87% chance for a hike in July. A few market participants still believe that should US CPI surprise to the upside, the Fed could still go for a 25bp hike on Wednesday.
• The benchmark 10-year US Treasury bond yield trades at 3.73%. Steady for now after the whipsaw move on Monday with the 10-year Treasury yield moving from 3.72% to 3.8% before closing at 3.74%.

US Dollar Index technical analysis: USD looking for guidance from US consumer data

The US Dollar is showing further signs of weakening as almost every currency in the Dollar Index (DXY) is gaining traction against the Greenback. That floor at 103 really comes close now and could see a firm break on the back of the US CPI numbers later this Tuesday.

On the upside, 105.44 (200-day SMA) still acts as a long-term price target to hit, as the next upside key level for the US Dollar Index is at 105.00 (psychological, static level), and acts as an intermediate element to cross the open space.

On the downside, 103.02 (100-day SMA) aligns as the first support level to confirm a change of trend. In case that breaks down, watch how the DXY reacts at the 55-day SMA at 102.55 in order to assess any further downturn or upturn.

How does Fed’s policy impact the US Dollar?

The US Federal Reserve (Fed) has two mandates: maximum employment and price stability. The Fed uses interest rates as the primary tool to reach its goals but has to find the right balance. If the Fed is concerned about inflation, it tightens its policy by raising the interest rate to increase the cost of borrowing and encourage saving. In that scenario, the US Dollar (USD) is likely to gain value due to decreasing money supply. On the other hand, the Fed could decide to loosen its policy via rate cuts if it’s concerned about a rising unemployment rate due to a slowdown in economic activity. Lower interest rates are likely to lead to a growth in investment and allow companies to hire more people. In that case, the USD is expected to lose value.

The Fed also uses quantitative tightening (QT) or quantitative easing (QE) to adjust the size of its balance sheet and steer the economy in the desired direction. QE refers to the Fed buying assets, such as government bonds, in the open market to spur growth and QT is exactly the opposite. QE is widely seen as a USD-negative central bank policy action and vice versa.