US Dollar jumps back above 106.00 after Fed's Williams signals rate hikes are not off the table

The US Dollar turns tide and heads back up after US data release and Fed comments.
Concerns were released overninght on the US Dollar from central banks of Europe and Asia.
The US Dollar Index turns flat and looks to be heading back to 106.00.

The US Dollar is turning green against most major peers after this Thursday's data underlined yet again the US Dollar exceptionalism. Upbeat surprises all around for the weekly Jobless numbers and as well for the Philadelphia Fed Manufacturing Survey. The losses from Wednesday and the overnight APAC session are getting erased.

During that same Asian-Pacific session, several parties screaming bloody murder on the stronger Greenback. European Central Bank (ECB) President Christine Lagarde was the first to start mentioning that the ECB is concerned with the weaker Euro against the US Dollar (EUR/USD) and sees inflation trickling into the Eurozone on the back of that. Additionally, a joint statement was released overnight from the Finance Ministers of Japan and South Korea, addressing their weaker currencies to the US because of the Greenback’s recent outperformance, causing inflation issues for their local monetary policy.

On the economic data front, all eyes now on the Leading Indicator Index and Home Sales. Add three Fed speakers and the US Dollar could be trading either back above 106.00 or snap even 105.00 in case a perfect storm gets formed.

Daily digest market movers: Not the base case

Headlines came out from Iran's Guard Commander Haghtalab said that Israel's nuclear facilities have been identified and marked and will be designated targets, should Israel attack Iran, Tasnim News Agency reports.
An ex-Mossad intelligence chief officer said to Sky News that striking Iran's nuclear factilities is on the table for Israel to target in its retaliation against Iran.
The first batch of data already got released:
- Weekly Jobless Claims data is set to be released:
  - Initial Claims for the week ending April 12 came in at 212,000, unchanged from 212,000 seen a week before.
  - Continuing Claims for the week ending April 5 came in at 1.812 million with the previous week's data was 1.810 million.
- Philadelphia Fed Manufacturing Survey for April was a big beat with 15.5 agaisnt 3.2 previous.
At 14:00 GMT the Existing Home Sales data for March was released. The March data saw a decline to 4.19 million, cming from 4.38 million.
Three US Federal Reserve speakers on Thursday:
- At 13:05 GMT, Federal Reserve Governor Michelle Bowman delivered opening remarks at the New York Fed Regional Conference. No guidance on monetary policy.
- Federal Reserve Bank of New York President John Williams participated in a discussion at the Semafor World Economy Forum in Washington D.C. and said that should data call for higher rates, the Fed will act. Although Williams made clear that is not hise baseline forecast, the possibility must not be ruled out.
- Federal Reserve Bank of Atlanta President Raphael Bostic will make two appearances on Thursday. Near 15:00 GMT in a Q&A about the US economic outlook and again at 21:45 GMT.
Equities are getting their neck shot on the back of Fed's Williams comments. US equities take a turn to red numbers just minutes after the comments and the US Opening bell. European equities erase intraday gains as well and are set to close in the red for this Thursday.
According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the May meeting are at 96%, while chances of a rate cut stand at 4%.
The benchmark 10-year US Treasury Note trades around 4.63%, and ticks back up from this week's low, though still quite far off Tuesday's high of 4.69%.

US Dollar Index Technical Analysis: all bets are off

The US Dollar Index (DXY) is facing a sudden pile-up of headlines that goes against any US Dollar strength. That some central banks around the globe are suddenly expressing their disfavour of the strong US Dollar is creating a bit of a knee jerk reaction, with traders taking their profits for now. In the longer run, towards June and the summer, the wider rate differential should still favor the Greenback and should see the DXY Index heading higher again.

On the upside, the fresh Tuesday’s high at 106.52 is the level to beat. Further up and above the 107.00 round level, the DXY Index could meet resistance at 107.35, the October 3 high.

On the downside, the first important level at 105.88, a pivotal level since March 2023, is being proved at the time of writing. Further down, 105.12 and 104.60 should also act as a support ahead of the region with both the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.17 and 103.91, respectively.

Dot Plot FAQs

What is the Federal Reserve “Dot Plot”?

The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.

When does the Federal Reserve publish the “Dot Plot”?

The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.

Why is the “Dot Plot” important for markets?

The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.

How does data in the “Dot Plot” affect the US Dollar?

The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.

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