- DXY Index is currently trading at a loss around 103.70.
- Key drivers of DXY Index movements will be US labor market data to be released this week.
- Expectations of the start of the easing cycle in June may limit losses.
The US Dollar Index (DXY) is presently fluctuating in the vicinity of 103.70, exhibiting minor losses on Monday. The market remains focused on potential variations in line with the flow of incoming data, including the key Nonfarm Payrolls (NFP) figures from February set for release later in the week.
The US labor market continues to influence the Federal Reserve’s (Fed) easing cycle, which is predicted to commence in June. This suggests that the Fed may adopt a more dovish stance in case a slowdown in employment is seen. The dovish outlook, inherently indicative of lower interest rates and near-term cuts, could potentially lead to a weaker US Dollar.
Daily digest market movers: DXY stands weak at the start of the week, eyes on labor market data
- Predictions for the Nonfarm Payrolls report (NFP) see an addition of 200K jobs in February, which will mean a deceleration from January’s reading. Wage inflation measured by the Average Hourly Earnings and the Unemployment Rate will also be studied.
- Other key employment figures set to be released this week include JOLTs Job Openings and ADP Employment Change from February and weekly Jobless Claims.
- Market predicts no likelihood of a rate reduction at the impending March 20 meeting, with the probability escalating to 25% on May 1 and reaching 90% for the June meeting.
- US Treasury bond yields are up and trading at 4.59% for the 2-year, 4.20% for the 5-year, and 4.22% for the 10-year bonds, which may limit the downside for the session.
DXY technical analysis: DXY faces bearish pressure in near term, bulls control broader view
The technical outlook for DXY indicates a somewhat convoluted scenario. The Relative Strength Index (RSI) showcases a negative posture with a descending trajectory, urging a comprehensive bearish momentum for the index in the short term. Similarly, the visible rise in red bars in the Moving Average Convergence Divergence (MACD) corroborates the increasing selling momentum, providing further weight to the bearish perspective.
In contradiction, the Simple Moving Averages (SMAs) paint a different picture entirely on the broader scale. Despite the bears asserting their presence by pushing the DXY below the 20 and 100-day SMAs, it remains notably above the 200-day SMA. This firm positioning suggests that the bulls are anything but phased, maintaining control over the larger time horizon. Consequently, while the immediate outlook may have the scales tipped in the bear’s favor, the ongoing bullish undercurrent cannot be ignored.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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