- The US Dollar rolls through markets and rallies across the board.
- Markets are closing any hopes for June or July Fed cut, even September doubtful.
- The US Dollar Index jumps away from the lower 104.00 and rallies higher.
The US Dollar (USD) rallies on the back of upside surprise in the Nonfarm Payrolls number, which came in at 272,000, topping the highest economist estimate at 258,000. Past few days hopes for a rate cut from the US Federal Reserve were starting to increase for September, though expect that possiblity to be out of the cards now. Question now will be if there will be a cut at all in 2024, as these numbers do not allow or demand from the Fed to cut.
On the economic front, all data is out now and markets can start to digest the numbers. Federal Reserve Governor Lisa Cook is still making an appearance, delivering a speech at the Girls Global Academy 2024 Commencement Ceremony at the University of the District of Columbia in Washington, D.C. Though there is no expectation that her speech will have any policy guidance information.
Daily digest market movers: Repricing is always painful
- At 12:30 GMT, the US Employment Report for May was released:
- Nonfarm Payrolls rallied from 185,000 in April to 272,000 in May. The fact that the previous 185,000 got revised down to 165,000 makes this number even bigger.
- Monthly Average Hourly Earnings ticked up to 0.4% May from 02.% a month before.
- Yearly Average Hourly Earnings jumped from 3.9% to 4.1%.
- Unemployment Rate went up a touch, from 3.9% to 4%.
- European equities are getting slaughtered over the US Jobs Report release, while US equities are still looking for direction.
- The CME Fedwatch Tool, is currently erasing a full rate cut for September after the NFP print.
- The benchmark 10-year US Treasury Note trades around 4.41%, and jumps up substantially, erasing hopes for a quick rate cut from the Fed.
US Dollar Index Technical Analysis: All done and dusted
The US Dollar Index (DXY) is flirting with a drop below the 104.00 handle. Some brief excursions below this level have already been made in the past few days, though for now, this area still sees ample amounts of buying interest. The question is how long those buyers will last, and should NFP come in under the weakest projection, something could snap.
On the upside, the DXY first faces a confluence resistance in the 200-day Simple Moving Average (SMA) and the 100-day SMA at 104.44. Further up, the pivotal level near 104.60 comes into play. For now, the topside can be seen around 105.00, with the 55-day SMA coinciding with this round number and the peak from recent weeks at 105.08.
On the downside, the 104.00 big figure looks to be holding. Once through there, another decline to 103.50 and even 103.00 are the levels to watch. With the Relative Strength Index (RSI) still not oversold, more downsides are still under consideration.
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.
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