- The US Dollar is set to end its worst week in over one year.
- Traders have devalued the Greenback further ahead of the US employment report.
- The US Dollar Index faces devastation and devalues over 3.5% so far this week.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is undergoing a harsh devaluation, losing over 3.5% since Monday and trading near 103.70 at the time of writing on Friday. The Greenback is undergoing a regime shift where the US Dollar is no longer in the graces of traders. The interest rate differential between the Federal Reserve (Fed) and other central banks is set to narrow after Fed Governor Christopher Waller said on Thursday that there might be two to three rate cuts this year.
On the economic data front, all eyes were on the Nonfarm Payrolls release this Friday. Expectations were for 160,000 jobs gained in February with the actual number coming in at 151,000. The jobimpact from DOGE and other influences looks not to have materialized yet in the job numbers.
Daily digest market movers: In line of estimates
- The US employment report for February is due:
- The Nonfarm Payrolls came in at 151,000, just below the 160,000 estimate and against the previous 143,000 reading from January.
- The Average Hourly Earnings month-on-month came in softer at 0.3% against 0.5%.
- The Unemployment Rate ticked up to 4.1%, coming from 4%.
- At 15:15 GMT, Fed Governor Michelle W. Bowman discusses “Monetary Policy Transmission Post-COVID” at The University of Chicago Booth School of Business 2025 US Monetary Policy Forum in New York.
- At 15:45 GMT, Federal Reserve Bank of New York President John Williams participates in a discussion of the US Monetary Policy Forum Report titled “Monetary Policy Transmission Post-Covid” at the University of Chicago Booth School of Business in Chicago, Illinois.
- At 17:20 GMT, Fed Governor Adriana Kugler speaks on ‘The Rebalancing of Labor Markets Across the World’ at the Bank of Portugal’s Conference on Monetary Policy Transmission and the Labor Market in Lisbon, Portugal.
- At 17:30 GMT, Fed Chair Jerome Powell delivers a speech on the economic outlook at The University of Chicago Booth School of Business 2025 U.S. Monetary Policy Forum in New York.
- At 18:00 GMT, Fed Governor Adriana Kugler delivers a speech on the economic outlook at the University of Chicago Booth School of Business 2025 U.S. Monetary Policy Forum, in New York.
- Equities are all heading lower after this Nonfarm Payrolls report which could be last positive one for now.
- After recent US economic data and Fed policymakers’ comments, the CME Fedwatch Tool projects a 46.8% chance of an interest rate cut in the May meeting compared to a 33.3% probability one week ago.
- The US 10-year yield trades around 4.24%, off its near five-month low of 4.10% printed on Tuesday.
US Dollar Index Technical Analysis: Holding on to these lows
The US Dollar Index (DXY) is facing a chunky loss this week, with over 3.5% in the red at the time of writing on Friday. The question is whether the Nonfarm Payrolls report can push back and deliver some relief on these losses. However, markets will want to see if the Department of Government Efficiency (DOGE) effect is already impacting the unemployment rate and the change in the Nonfarm Payrolls going forward.
With this week’s sharp decline, the 104.00 round level is being broken at the time of writing on Friday and looks unfit to see a return soon. Further up, the first upside target is to recover the 105.00 round level and the 200-day Simple Moving Average (SMA) at 105.03. Once that zone has been recovered, several near-term resistances are lined up, with 105.53 and 105.89 identified as two heavy pivotal levels before breaking back above 106.00.
On the downside, the 103.00 round level could be considered a bearish target in case US yields roll off again, with even 101.90 not unthinkable if markets further capitulate on their long-term US Dollar holdings.
US Dollar Index: Daily Chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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