US Dollar eats into weekly gains with this week's data not bearing a key to unchain the Greenback

The US Dollar trades near flat for this week and sees Friday's gains abate after last US data points.
Markets are seeing this week being a standstill for the Greenback.
The US Dollar Index orbits around 104.00, unable to break away in either way.

The US Dollar (USD) is giving up its gains for this Friday and for this week in the aftermath of the Institute for Supply Management (ISM) and University of Michigan print. The contradiction this Friday between the Global Purchase Managers Index and the ISM makes traders listen to the recent US Federal Reserve officials comments not to hang too much weight on the recent inflation readings. This means the Fed is convinced that the disinflationary path is still in tact and a rate hike is not in the game plan of the Fed..., yet.

On the economic front, all data points have been done and dusted for this week. All eyes will now be on the next week with the monthly US Jobs Report and the European Central Bank holding a monetary policy decision. Meanwhile Fed speakers will release further comments into the US closing bell for this week.

Daily digest market movers: Fed speakers easing this weeks data releases

This Friday kicked off with the final reading of the S&P Global Manufacturing PMI for February. Expectations were for an unchanged reading at 51.5, though the number came out higher at 52.2.
At 15:00 GMT, both the University of Michigan and the Institute for Supply Management (ISM) was released:
- For the final February reading from the University of Michigan:
  - Consumer Sentiment went from 79.6 to 76.9.
  - The Inflation expectations remained steady at 2.9%
- The ISM PMI data release will contain the following elements:
  - The headline Manufacturing PMI declined from 49.1 to 47.8.
  - The Manufacturing Employment subcomponent contracted further from 47.1 to 45.9.
  - The New Orders Index was at 52.5, and declined to 49.2
  - The Prices Paid Index followed the above trend, and slid lower as well from 52.9 to 52.5.
The Federal Reserve has its own schedule this Friday:
- Richmon Fed Governor Tom Barkin said that a rate hike is not needed with the contraction in some sectors. Though the Fed should not be in a hurry to cut, even if there are no cuts for this year.
- Fed Board of Governors member Christopher Waller and Dallas Fed President Lorie Logan released comments as well during a panel discussion. They see the Fed to be gradually restrictive while the balance sheet runoff should be at a more slower pace.
- Raphael Bostic, head of the Atlanta Fed, is due to speak at 17:15 GMT.
- San Francisco Fed President Mary Daly and Federal Reserve Bank of Kansas City President Jeffrey Schmid will participate in a panel discussion at 18:30 GMT.
- Fed Board of Governors member Adriana Kugler will speak at around 20:30 GMT.
- At 16:00 GMT, the Fed will release its Monetary Policy Report which will be sent to Congress before the semi-annual hearings take place next week.
Equities are turning red in the aftermath of the Global Manufacturing print, which builds the case for a steady-for-longer rate stance from the Fed.
According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 97%, while chances of a rate cut stand at 3%.
The benchmark 10-year US Treasury Note trades around 4.20%, the lower end for this week

US Dollar Index Technical Analysis: Rate hikes out of the cards for now

The US Dollar Index (DXY) has not moved much and is set to close the week with a minor gain. The divergence between Fed speakers commenting on Fed rate cuts and recent inflation data opening the possibility of another rate hike is creating a vacuum in which the US Dollar is unable to move. It looks like traders will keep their powder dry until next week, when the US Jobs Report will be released and Fed’s Chairman Jerome Powell will testify in Congress.

To the upside, the 100-day Simple Moving Average (SMA) near 103.97 has been broken for now and should not see a retest anywhere later this Friday. Should the US Dollar be able to cross 104.60, 105.12 is the next key level to keep an eye on. One step beyond there comes 105.88, the high from November 2023. Ultimately, 107.20 – the high of 2023 – could come back into scope.

Looking down, the 200-day Simple Moving Average at 103.74 has been broken twice recently, making it a weak support. The 200-day SMA should not let go that easily though, so a small retreat back to that level could be more than granted. Ultimately, should it lose its force, prices could fall to 103.16, the 55-day SMA, before testing 103.00.

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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