- Nonfarm Payrolls data reported by the US Bureau of Labor Statistics came in higher than expected.
- Average Hourly Earnings for February unveiled a lower figure than expected, while the Unemployment Rate increased.
- Markets are still seeing the first cut in June.
- The index will close out a 1% losing week, its worst performance since December.
The US Dollar Index (DXY) is trading near 102.60 on Friday, recording a loss. The driving factors for these movements largely include the dovish stance of the Federal Reserve (Fed) Chair, Jerome Powell, and the weak performance of the US labor market in February.
Despite the Nonfarm Payrolls (NFP) report for February showing that the US Unemployment rate increased while Earnings mildly eased, markets are still betting that the easing cycle will begin in June. For the next session, the USD may suffer additional losses as investors fear an economic slowdown.
Daily digest market movers: DXY falls to lows after NFPs figures
- February’s Nonfarm Payrolls reported by the US Bureau of Labor Statistics exceeded expectations, coming in at 275,000, remarkably higher than the predicted 200,000, indicating robust employment growth.
- On the negative side, the Unemployment rate for February saw an increase to 3.9%, higher than expectations of 3.7%.
- Wage inflation measured by the Average Hourly Earnings missed the consensus to rise by 4.3% YoY.
- US Treasury yields show a mixed performance with the 2-year yield at 4.48%, the 5-year yield at 4.06%, and the 10-year yield at 4.09%.
- According to the CME FedWatch Tool, the odds of Fed interest rate cuts in March and May remain low. Markets are bracing for the first cut to come in June.
DXY technical analysis: DXY bears seize control, oversold signals loom
The DXY’s outlook is predominantly bearish despite the Relative Strength Index (RSI) nearing oversold conditions. The RSI’s position near 30 often signals the potential for a price reversal. With the Moving Average Convergence Divergence (MACD) presenting rising red bars, the momentum is currently pointing toward the bears.
Further compounding this bearish notion, DXY resides below its 20, 100 and 200-day Simple Moving Averages (SMAs), contributing to an overall downward trend. These SMAs are pivotal technical markers, and their placement below current prices typically strengthens the sellers’ grip.
The bearish price action in recent trading sessions allies with the technical indicators to forge a negative short-term outlook. However, the RSI’s near-oversold position may provide some potential for buyers to contest the bear’s hold, but they will struggle against the prevailing negative momentum.
Fed FAQs
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.
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.
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.
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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