The US Dollar holds on to Friday’s gains on Monday.
US economic calendar is light on Monday, letting the dust settle further over Friday’s NFP report.
The US Dollar Index moves further away from key technical support levels with 105.00 as a target for the end of this week.
The US Dollar (USD) is kicking off this Monday with both the Asian and the European trading session in the green. The Greenback is able to hold on to the gains it locked in on Friday after a very strong US Nonfarm Payrolls print that surpassed all expectations by coming in at 303,000 instead of declining from 275,000 to 200,000. The question will be this week if traders will start to factor in US exceptionalism, which would mean that the US economy will thrive further without any rate cuts from the US Federal Reserve.
There is only one big event to look out for this Monday, which is the participation of Federal Reserve Bank of Minneapolis President Neel Kashkari in a Town Hall meeting at the University of Montana in Missoula. Although Kashkari is a non-voter this year, known for his hawkish stance, a change in his comments could mean an alteration in market expectations over the Fed’s monetary policy.
Daily digest market movers: Take it easy
The US Treasury Department is getting ready for action this Monday with no less than two auctions: Both a 3-month and a 6-month bill will be auctioned around 15:30 GMT.
Federal Reserve Bank of Minneapolis President Neel Kashkari will speak in a Town Hall meeting at the University of Montana in Missoula. Expect any market-related comments from him to come in around 23:00 GMT.
A very calm start of the week with Asian equities overall up in Japan and China by more than 0.50%. In Europe, equities are looking for direction while US equity futures are flat ahead of the US opening bell for this week.
According to the CME Group’s FedWatch Tool, expectations for the Fed’s May 1 meeting are at 98.2% for keeping the fed funds rate unchanged, while chances of a rate cut are at 1.8%.
The benchmark 10-year US Treasury Note trades around 4.48% after it rallied over 20 basis points in just one week.
US Dollar Index Technical Analysis: It’s all about rates
The US Dollar Index (DXY) broke a lot of pots on Friday after the US Jobs Report came in with a stellar performance. Questions will start to grow further now among traders if those awaited Fed rate cuts will be coming, and the answer will be: probably not. Certainly, June looks more and more likely not to be the moment, which means a repricing to later 2024 or even 2025. Speculation of delayed rate cuts should coincide with a bit more US Dollar strength as all other major central banks are getting ready to cut.
That first pivotal level for the DXY comes in at 104.60, which got broken last week on Wednesday to the downside, though broken up again from below on Friday. Further up, 105.12 is the key point after the DXY failed to break that level last week. Once above there, 105.88 is the last resistance point for now before the Relative Strength Index (RSI) will trade in overbought levels.
Supports from the 200-day Simple Moving Average (SMA) at 103.81, the 100-day SMA at 103.43, and the 55-day SMA at 103.89 have shown their importance last week on Wednesday. Further down, the 103.00 big figure looks to remain unchallenged for longer with ample support thus standing in the way.
Interest rates FAQs
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.
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.
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.
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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