US Dollar holds on to gains after Powell repeated two more hikes to come

The US Dollar is firmly in the green as the Greenback gains in Asia.
Wednesday’s focus will be on Powell speaking in Sintra and some third-grade macro data.
The US Dollar Index is in the green and pops back above the important threshold of 102.50.

The US Dollar (USD) is holding on to its intraday gains for now after its lackluster performance at the beginning of the week, and now is pushing on against Asian currencies after the US considers new curbs on AI chip exports to China. The Greenback is outperforming against the Chinese Yuan at a six-month high and against the Japanese Yen. This translates into substantial gains for the US Dollar Index, which is back above 102.50.

Wednesday’s focus was mainly on US Federal Reserve (Fed) Chairman Jerome Powell, who spoke at the European Central Bank’s symposium in Sintra, Portugal. Powell reiterated that most like two more rate hikes is appropriate for this year without hurting the job market. Markets are to get some more insight on the US economy through a small batch of data, Wholesale Inventories and the Goods trade Balance for May. Later, at 20:30 GMT, the US Bank Stress Test report will be interesting to read through.

Daily digest: US Dollar picks up speed

US Fed chairman Powell spoke during a panel discussion at Sintra where he repeated again the last known stance of the Fed: Two more hikes this year, without large job losses at hand.
US equity Futures are unable to take over the positive tone from Europe as Nvidia falls on the back of possible curbs for AI chip exports to China.
US Secretary of State Antony Blinken commented that internal cracks are emerging in Russia.
Just after European lunchtime the Greenback is printing a staggering performance and trades at session's high in several pairs. The US Dollar index is almost erasing the losses for this week.
Reports are coming from Washington that the US Commerce Department is set to close loopholes on AI chip exports to China.
US MBA Mortgage Applications have come in at 3.0%, which is a firm uptick from the previous number at 0.5%.
Goods Trade Balance and Wholesale Inventories were roughly in line: Goods Trade Balance went from $-96.8 billion to $-91.1 billion.Wholesale Inventories were kept steady at -0.1% Month-over-Month..
The US Treasury is heading to the markets to place a 7-year Note.
Asian equities are in the green, with the Chinese Hang Seng Index posting gains for a second consecutive day.. The Japanese Topix is jumping 2%. European equity indices have taken over the positive tone, while US futures are mildly in the red.
The CME Group FedWatch Tool shows that markets are pricing in a 76.9% chance of a 25 basis points (bps) interest-rate hike on July 26th. The certainty of one more hike has increased as US Fed Chairman Jerome Powell remained hawkish in the recent two hearings before the US Congress, though markets remain reluctant to price in that second rate hike.
The benchmark 10-year US Treasury bond yield trades at 3.74%. The bond sell-off of Monday and Tuesday seems to be halted a little bit.

US Dollar Index technical anlysis: US Dollar steady as Powell takes stage

The US Dollar is alligning itself against most major currencies and starts to book gains on all fronts, with most notable performances are against the Chinese Yuan and the Japanese Yen, both trading at a six-month low against the Greenback. Biggest loser of the day is the New Zealand Dollar, which is losing over 1% against the US Dollar. This values the US Dollar Index above an important psychological threshold at 102.50, .

On the upside, the 100-day Simple Moving Average (SMA) briefly touched at 103.04 remains as the level to break above and hold. That attempt failed last week, and could demand more conviction from the Greenback in order to head and stay above that level. Once that happens, look for 103.50 as the next key level to the upside.

On the downside, the 55-day SMA near 102.63 is being breached again, losing its importance after being chopped up several times last week. As mentioned, 102.50 will be vital to hold from a psychological point of view. In case the DXY slips below 102.50, more weakness is expected with a full slide to 102.00 and a retest of June’s low at 101.92.

Interest rates FAQs

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Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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