US Dollar gets weakened by soft economic data, eyes on PPI

The DXY Index recorded losses in Thursday’s session, falling toward 104.40.
Retail Sales from January declined higher than expected.
Weekly Initial Jobless Claims came in strong.

The US Dollar (USD) measured by the Dollar Index (DXY) declined further on Thursday, this time fueled by weak Retail Sales figures from January.

Despite the weak Retail Sales figure, the US economy continues to show signs of being overheated, as seen in the higher-than-expected inflation figures from January that reinforce the case for the Fed delaying rate cuts. On Friday, Producer Price Index (PPI) figures will be closely watched as they may provide additional traction to the USD in case they come in higher than expected.

Daily digest market movers: US Dollar loses ground on weak economic data

Retail Sales declined -0.8% MoM in January, beating the 0.1% decline expected.
Industrial Production from the first month of 2024 declined by -0.1% MoM, while markets expected a 0.3% expansion.
On the bright side, Initial Jobless Claims from the week ending February 9, came in lower than expected at 212K.
Despite the weak data, markets are still confident about delaying rate cuts by the Federal Reserve (Fed), and as long as investors push the start of easing to June, the USD’s losses are limited.

Technical analysis: DXY will be good as long as buyers hold the 100-day SMA

The technical analysis on the daily chart reflects a negative slope in the Relative Strength Index (RSI), indicating selling momentum in the short term. The Moving Average Convergence Divergence (MACD) shows decreasing green bars, further supporting the concept of selling pressure.

However, despite these short-term negative indicators, the Dollar Index remains above the 20, 100, and 200-day Simple Moving Averages (SMAs), suggesting that the overall trend is still controlled by bulls.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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.

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