US Dollar retreats further after ADP and Jobless Claims confirm Goolbee's call for rate cuts

The US Dollar retreats further after softer US data.
Markets are seeing Fed's Goolsbee break ranks and signals time to cut is near.
The US Dollar index falls below 105.50 after US data triggers another leg lower.

The US Dollar (USD) is continuing its easing for this Wednesday after both ADP and Initial Jobless Claims numbers confirmed and backed earlier comments from US Federal Reserve Bank of Chicago President Austan Goolsbee in Sintra during the European Central Bank symposium. Goolsbee said that keeping rates steady while inflation is coming down should also be considered as tightening and is no longer needed, suggesting interest rate cuts on the table. Ahead of the Fed’s Federal Open Market Committee (FOMC) Minutes, a bold statement to make.

On the US economic front, the calendar is very crowded on Wednesday, with many data points being moved from Thursday due to the US public holiday. The main key element, the ADP Employment Change number for June ahead of the US Nonfarm Payrolls print on Friday, came in softer than expected. Additionally, the FOMC Minutes for the June meeting will be released at the end of the day, and some volatility looks to be guaranteed.

Daily digest market movers: ADP - Jobless miss

At 11:30 GMT, the Challenger Job Cuts for June saw a decline in job cuts from 63,816 to 48,786.
The June ADP Employment Change data missed estimates on all fronts. An increase of 160,000 was expected after the 152,000 seen in Maym though the actual number came in at 150,000.
Weekly Jobless Claims were exceptionally on Wednesday:
- Initial Jobless Claims for the week ending June 28 are expected to rise to 235,000 from 233,000 a week before. Though the uptick was bigger, to 238,000.
- Continuing Jobless Claims were at 1.839 million, and came in at 1.858 million for the week ending June 21.
At 14:00 GMT, the Institute for Supply Management will release June’s Purchasing Managers Index (PMI) reading for the Services sector:
- The Employment Index was at 47.1 in May, with no forecast available for June.
- The New Orders Index was at 54.1 in May, with no forecast available for June.
- The ISM Services PMI is expected to ease to 52.5 in June from 53.8.
- The Prices Paid Index was at 58.1 in May, with no forecast available for June.
On the Federal Reserve front, some communication on the docket:
- At 10:30 GMT, comments from the Federal Reserve Bank of New York President John Williams, who participates in a panel about drivers of equilibrium interest rates at the ECB Forum on central banking in Sintra, Portugal.
- At 18:00 GMT, the FOMC Minutes for the Federal Reserve’s June meeting will be released.
European equities are flirting with a 1% increase on the day. US Futures are still looking for direction though are starting dig out more losses.
The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Fed officials. The odds now stand at 59.9% for a 25-basis-point cut. A rate pause stands at a 34.7% chance, while a 50-basis-point rate cut has a slim 5.4% possibility.
The US 10-year benchmark rate trades near 4.40%, and falls to the lower end for this week.

US Dollar Index Technical Analysis: Goolsbee ready for cuts, now the Fed?

The US Dollar Index (DXY) is easing a touch after Fed member Goolsbee dissented from his fellow members by saying that keeping rates steady for longer is not helping anymore. His call for rate cuts is a welcomed change after hearing each and every FOMC member saying that rates will remain steady for longer. Rate cuts should see some weakening of the Greenback, and could mean that the DXY will not be making any new highs anytime soon.

On the upside, the pivotal level of 105.89 is a must-have for additional gains. Once a daily close has taken place above that level, marching above the red descending trend line in the chart below at 106.26 and the peak of April at 106.52 are the two main resistances ahead of a fresh nine-month high. That would be reached once 107.35 is broken to the upside.

On the downside, 105.53 is the first support ahead of a trifecta of Simple Moving Averages (SMA). Next down is the 55-day SMA at 105.24, safeguarding the 105.00 round figure. A touch lower, near 104.75 and 104.45, both the 100-day and the 200-day SMA form a double layer of protection to support any declines together with the green ascending trendline from last December.

US Dollar Index: Daily Chart

Banking crisis FAQs

What happened during the Banking Crisis?

The Banking Crisis of March 2023 occurred when three US-based banks with heavy exposure to the tech-sector and crypto suffered a spike in withdrawals that revealed severe weaknesses in their balance sheets, resulting in their insolvency. The most high profile of the banks was California-based Silicon Valley Bank (SVB) which experienced a surge in withdrawal requests due to a combination of customers fearing fallout from the FTX debacle, and substantially higher returns being offered elsewhere.

How did Silicon Valley Bank spread the banking liquidity crisis?

In order to fulfill the redemptions, Silicon Valley Bank had to sell its holdings of predominantly US Treasury bonds. Due to the rise in interest rates caused by the Federal Reserve’s rapid tightening measures, however, Treasury bonds had substantially fallen in value. The news that SVB had taken a $1.8B loss from the sale of its bonds triggered a panic and precipitated a full scale run on the bank that ended with the Federal Deposit Insurance Corporation (FDIC) having to take it over.The crisis spread to San-Francisco-based First Republic which ended up being rescued by a coordinated effort from a group of large US banks. On March 19, Credit Suisse in Switzerland fell foul after several years of poor performance and had to be taken over by UBS.

What was the impact of the Banking Crisis on the US Dollar?

The Banking Crisis was negative for the US Dollar (USD) because it changed expectations about the future course of interest rates. Prior to the crisis investors had expected the Federal Reserve (Fed) to continue raising interest rates to combat persistently high inflation, however, once it became clear how much stress this was placing on the banking sector by devaluing bank holdings of US Treasury bonds, the expectation was the Fed would pause or even reverse its policy trajectory. Since higher interest rates are positive for the US Dollar, it fell as it discounted the possibility of a policy pivot.

What was the impact of the Banking Crisis on the price of Gold?

The Banking Crisis was a bullish event for Gold. Firstly it benefited from demand due to its status as a safe-haven asset. Secondly, it led to investors expecting the Federal Reserve (Fed) to pause its aggressive rate-hiking policy, out of fear of the impact on the financial stability of the banking system – lower interest rate expectations reduced the opportunity cost of holding Gold. Thirdly, Gold, which is priced in US Dollars (XAU/USD), rose in value because the US Dollar weakened.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.