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US Dollar stands mildy up on higher US Treasury yields, eyes on FOMC – Crypto News

Published

2 years ago

March 19, 2024

Dripp

The DXY started the week with mild gains.
All eyes are set on Wednesday’s FOMC meeting.
No relevant reports were released on Monday.

The US Dollar Index (DXY) trades at 103.55 on Monday, reflecting minor gains. Rising US Treasury yields also favored the favorable start of the week. All eyes are now on the Federal Reserve (Fed) decision on Wednesday and the updated economic projections.

The US economy is at a pivotal juncture as inflation remains sticky, while weak labor market data seem to be balancing investor expectations on the Fed’s timing for beginning the easing cycle. As for now, the first cut is seen in June.

Daily digest market movers: DXY rises on quiet Monday on the back of rising US Treasury yields

The Federal Reserve is projected to exercise patience before implementing policy easing, considering that there seem to be signs of US inflation progress slowing down.
At present, the markets are predicting a 65% chance of a rate cut in June, with a full rate cut already considered in the projections for the July meeting.
The updated Dot Plots will provide markets with additional guidance.
Despite a recent dovish testimony by Powell, the majority of officials from the Federal Reserve express caution regarding premature monetary easing.
US Treasury bond yields are rising with trading figures clocking in at 4.75% for the 2-year yield, 4.35% for the 5-year yield, and 4.33% for the 10-year yield.

DXY technical analysis: DXY confronts bearish disposition, while still suggesting a glimmer of hope

In terms of the current technical outlook, the DXY’s momentum seems to be shifting in favor of bulls. The Relative Strength Index (RSI) jumped above 50, while the Moving Average Convergence Divergence (MACD) exhibits decreasing red bars, demonstrating a declining negative momentum.

That being said, the Dollar Index still resides below the 20,100 and 200-day Simple Moving Averages (SMAs). This shows the persisting dominance of bearish sentiment in a broader context. Despite indications of bulls gaining some ground, the current position suggests that selling power remains decidedly stronger.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.