On a typically quiet Thursday, the US Dollar finds itself slightly down against other key currencies. The buzz around the financial world is largely due to US President Donald Trump’s remarks concerning Ukraine and a potential trade agreement with China. This development has caused the US Dollar Index (DXY) to take a step back, slipping below the 107.00 mark after being strongly rejected mid-week.
The DXY, tracking the greenback’s strength against a basket of six major currencies, is on a downward trend as of Thursday. This shift comes in light of President Trump’s suggestion that a trade deal with China could be on the horizon, creating some much-needed optimism regarding tariffs. Such an agreement could signal easing before new tariffs are slated to start in April.
In terms of economic releases, the US calendar is pretty tame this Thursday. The only items to note are the weekly Initial Jobless Claims, the Philadelphia Fed Manufacturing Survey for February, and a few speeches by Federal Reserve policymakers. Nonetheless, similar to earlier in the week, Trump’s statements are likely to overshadow any data coming in.
Market Movers: Is It Worth the Hype?
At 13:30 GMT, the spotlight will be on the weekly US Jobless Claims, where figures are expected to slightly rise to 215,000 from 213,000 for the week ending February 14. Concurrently, Continuing Claims for the week ending February 7 are anticipated to edge up to 1.87 million from the previous count of 1.85 million. Meanwhile, the Philadelphia Fed Manufacturing Survey is predicted to show a drop to 20 in February following January’s 44.3 reading.
A slew of speeches from Fed officials are lined up for the day, starting at 14:35 GMT with Chicago Fed President Austan Goolsbee participating in a Q&A session. Then, at 17:05 GMT, St. Louis Fed President Alberto Musalem will address the Economic Club of New York. Fed Vice Chair for Supervision Michael Barr is set to discuss regulatory topics at 19:30 GMT, and finally, Federal Reserve Governor Adriana Kugler will present a lecture at 22:00 GMT.
Stock markets around the world are generally in the red, except for European indices like the German Dax and the pan-European Stoxx 50 which are both posting gains. According to the CME FedWatch tool, there is a 51.2% chance that interest rates will remain unchanged by June. The yield on the US 10-year treasury note is hovering around 4.52%, slightly below the week’s earlier high of 4.574%.
Technical Outlook: Is the Dollar Losing Its Grip?
After a promising rise, the US Dollar Index has slid back, undoing gains made on Wednesday. A stalwart technical resistance at 107.35 proved too much for the DXY, nudging it back to its starting point from earlier in the week. A fresh round of reassuring comments from President Trump about easing tariffs or striking new deals might see the index revisiting the 106.60 level.
For upward momentum, breaking past the 107.35 resistance is key, and the subsequent barrier lies at the 55-day Simple Moving Average of 107.96 before any potential push towards 108.00. On the downside, support points to watch include 106.56 (the 100-day SMA), 106.52 (from April 16, 2024, highs), and possibly 105.89 (resistance from June 2024). The daily Relative Strength Index indicates further downside is possible. A strong catalyst could bring in the 200-day SMA level of 104.97 into play.
Understanding the US Dollar
The US Dollar, known globally as the primary currency of the United States, also serves as a key currency in numerous other nations. It holds a central role in global finance, backing around 88% of all currency transactions, with an average daily trading volume of $6.6 trillion as reported in 2022. Following WWII, the USD overtook the British Pound as the world’s reserve currency. Historically, the Dollar was linked to gold until the Bretton Woods Agreement dissolved the Gold Standard in 1971.
Monetary policy, shaped by the Federal Reserve, is crucial in determining the USD’s value. The Fed’s dual mandate focuses on controlling inflation and fostering employment, primarily by adjusting interest rates. If inflation spikes beyond the 2% target, the Fed raises rates, which typically strengthens the Dollar. Conversely, if inflation is below target or unemployment is high, rates might be reduced, putting pressure on the Dollar.
In extreme situations, the Fed implements quantitative easing by increasing the flow of credit when liquidity dries up, typically weakening the Dollar. Conversely, quantitative tightening—where the Fed stops bond purchases—invariably bolsters the Greenback.
