US Dollar gets some support from US data ahead of Fed speakers

The US Dollar fights back and bounces off session’s lows.
US GDP confirms while weekly Jobless Claims remain steady.
The US Dollar Index bounces off a 15-month low and ticks up with the help of strong data.

The US Dollar (USD) ticks up on the back of some US data supporting a stronger US Dollar this Thursday. Besides a bulk data release, no less than eight US Federal Reserve (Fed) policymakers are set to speak, including Fed Chairman Jerome Powell. Comments will be watched more than ever by market participants after Bloomberg reported on Wednesday that a bond trader took out 118,000 future contracts betting on a big interest rate cut in the Fed’s next meeting in November, the largest size traded on record ever.

On the economic data front, major data elements are out of the way. The third reading in US Gross Domestic Product numbers came in line as expected. The Durable Goods number came in stronger than expected, while the weekly Jobless Claims are again a surprise on the healthiness of the job market.

Daily digest market movers: Employment still in good shape

Bloomberg reported on Wednesday that a bond trader had bought 118,000 SOFR or Fed futures, betting on a 50 basis point rate cut in November. The amount was the largest on record to be traded in one trade and for a single position.
The Chinese government is adding more stimulus to markets, this time via a capital injection of 1 trillion Yuan (CNY) into several of its major banks.
At 12:30 GMT, the main part of the economic data has been released:
- Weekly Jobless Claims:
  - Initial Claims fell to 218,000, coming from a revised 222,000 the previous week.
  - Continuing Claims for the week ending September 13 came in higher than last week at 1.834 million against 1.821 million the previous week.
- August US Durable Goods Orders:
  - Headline Durable Goods fell to 0%, better than -2.6% expected, after the surge of 9.9% in July.
  - Durable Goods, excluding cars and transportation came in at 0.5%, better than the 0.1% expected and against the small decline of -0.1% in July.
- Third reading of the US GDP for the second quarter:
  - Headline GDP was unchanged at 3%.
  - Personal Consumption Expenditures (PCE) Prices was stable at 2.5% quarter-on-quarter (QoQ).
  - Core PCE did not move away from the 2.8% QoQ of the previous reading.
The Kansas Fed Manufacturing Activity Index for September will be released at 15:00 GMT. The expectation is for an increase to 9, coming from 6 in August.
At 13:10 GMT, Fed policymakers will make their way to the stages:
- At 13:10 GMT, Federal Reserve Bank of Boston President Susan Collins participates in a virtual fireside chat with Fed Governor Adriana Kugler about bank supervision and financial inclusion at a workshop organized by the Federal Reserve Banks of Boston and Minneapolis.
- Around the same time Federal Reserve Governor Michelle Bowman delivers a speech about the US economic outlook and monetary policy at a workshop organized by the Mid-size Bank Coalition of America Board of Directors.
- At 13:20 GMT, Federal Reserve Chairman Jerome Powell delivers pre-recorded opening remarks at the 2024 US Treasury Market Conference in New York, followed by comments by Federal Reserve Bank of New York President John Williams.
- At 14:30 GMT, Federal Reserve Vice Chair for Supervision Michael Barr delivers remarks at the 2024 US Treasury Market Conference in New York, while Federal Reserve Governor Lisa Cook participates in a roundtable discussion about artificial intelligence and the development of the workforce at an event hosted by the Federal Reserve Bank of Cleveland and Columbus State Community College in Ohio.
- At 17:00 GMT, expect comments from Fed Reserve Vice Chair for Supervision Michael Barr, who participates in a virtual fireside chat about financial inclusion with Minneapolis Fed President Neel Kashkari at the Boston Fed’s Financial Inclusion and Banking Supervision Workshop.
Asian equity markets are rallying higher, led by China, after additional capital injections for the banks. European equities are lagging a touch while US futures are aligned with the Asian rally.
The CME Fedwatch Tool shows a 39.5% chance of a 25 basis-point rate cut at the next Fed meeting on November 7, while 60.5% is pricing in another 50-basis-point rate cut.
The US 10-year benchmark rate trades at 3.80%, looking to test the three-week high at 3.81%

US Dollar Index Technical Analysis: Data not that bad at all

The US Dollar Index (DXY) is either set to be thrown left and right on Thursday or could cover a lot of ground in one direction. The first scenario would play out if economic data misses expectations and does not align with all the comments from the Fed speakers. In case all data falls in line with expecctations, and Fed speakers even use recent data to build up their view or outlook, expect to see a potential nosedive or rally in the DXY.

The upper level of the September range remains at 101.90. Further up, the index could go to 103.18, with the 55-day Simple Moving Average (SMA) at 102.36 along the way. The next tranche up is very misty, with the 100-day SMA at 103.57 and the 200-day SMA at 103.76, just ahead of the big 104.00 round level.

On the downside, 100.22 (the September 18 low) is the first support, and a break could point to more weakness ahead. Should that take place, the low from July 14, 2023, at 99.58, will be the next level to look out for. If that level gives way, early levels from 2023 are coming in near 97.73.

(This story was corrected on September 26 at 13:12 GMT to update the Initial Jobless Claims from the previous week to 222K, revised from 219K.)

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.

Source: https://www.fxstreet.com/news/us-dollar-near-yearly-lows-ahead-of-volatile-thursday-202409261030