US Dollar opens with losses as market anticipates labor market data – Crypto News – Crypto News
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US Dollar opens with losses as market anticipates labor market data – Crypto News

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  • DXY Index is currently trading at a loss around 103.70.
  • Key drivers of DXY Index movements will be US labor market data to be released this week.
  • Expectations of the start of the easing cycle in June may limit losses.

The US Dollar Index (DXY) is presently fluctuating in the vicinity of 103.70, exhibiting minor losses on Monday. The market remains focused on potential variations in line with the flow of incoming data, including the key Nonfarm Payrolls (NFP) figures from February set for release later in the week. 

The US labor market continues to influence the Federal Reserve’s (Fed) easing cycle, which is predicted to commence in June. This suggests that the Fed may adopt a more dovish stance in case a slowdown in employment is seen. The dovish outlook, inherently indicative of lower interest rates and near-term cuts, could potentially lead to a weaker US Dollar.

Daily digest market movers: DXY stands weak at the start of the week, eyes on labor market data

  • Predictions for the Nonfarm Payrolls report (NFP) see an addition of 200K jobs in February, which will mean a deceleration from January’s reading. Wage inflation measured by the Average Hourly Earnings and the Unemployment Rate will also be studied.
  • Other key employment figures set to be released this week include JOLTs Job Openings and ADP Employment Change from February and weekly Jobless Claims.
  • Market predicts no likelihood of a rate reduction at the impending March 20 meeting, with the probability escalating to 25% on May 1 and reaching 90% for the June meeting.
  • US Treasury bond yields are up and trading at 4.59% for the 2-year, 4.20% for the 5-year, and 4.22% for the 10-year bonds, which may limit the downside for the session.

DXY technical analysis: DXY faces bearish pressure in near term, bulls control broader view 

The technical outlook for DXY indicates a somewhat convoluted scenario. The Relative Strength Index (RSI) showcases a negative posture with a descending trajectory, urging a comprehensive bearish momentum for the index in the short term. Similarly, the visible rise in red bars in the Moving Average Convergence Divergence (MACD) corroborates the increasing selling momentum, providing further weight to the bearish perspective. 

In contradiction, the Simple Moving Averages (SMAs) paint a different picture entirely on the broader scale. Despite the bears asserting their presence by pushing the DXY below the 20 and 100-day SMAs, it remains notably above the 200-day SMA. This firm positioning suggests that the bulls are anything but phased, maintaining control over the larger time horizon. Consequently, while the immediate outlook may have the scales tipped in the bear’s favor, the ongoing bullish undercurrent cannot be ignored. 

 

 

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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