03/05/2024
US dollar update
Summary
The U.S. dollar has exhibited declines in the last few days, culminating in a decrease below the 105.2 level, reaching its lowest price in the last three weeks. Factors influencing these movements include the Federal Reserve’s recent decisions and statements regarding inflation and monetary policy. Notably, the Fed maintained its target interest rate range at 5.25%-5.50%, adhering to an easing bias in its forward guidance while simultaneously announcing a significant reduction in the pace of its quantitative tightening program. Starting in June, the monthly cap on maturing Treasuries rolling off the balance sheet will decrease from $60 billion to $25 billion.
Inflation remains a key concern for the Fed, with recent remarks highlighting a stagnation in progress towards controlling price pressures, despite previous measures. This situation has left the U.S. dollar vulnerable, particularly as bond yields have trended lower. These yields are likely to face challenges in sustaining an upward trajectory, which could further weaken the dollar unless countered by stronger-than-expected economic indicators.
On the data front, Factory Orders in March rose by 1.6% month-over-month, while Initial Jobless Claims held steady at 208,000. These figures will likely play into the broader narrative around the U.S. economic outlook as markets assess the potential for inflationary pressures and interest rate adjustments moving forward.
Looking ahead, the job market continues to be a focal point, with the April NFPs being particularly significant. Expectations are set around 243,000 new jobs, with outcomes likely to influence monetary policy perceptions and the dollar’s strength. A weaker-than-anticipated jobs report could lead to anticipations of more aggressive monetary easing in 2024, whereas stronger job growth might pave the way for expectations of sustained higher interest rates.
Market Views & Opinions
UOB in today’s Chart of the Day report says:
“EUR/USD subsequently broke below 1.0695, reaching a low of 1.0599 in mid-April. Despite the decline, there has been no significant increase in downward momentum. Although EUR/USD is currently trading below the weekly Ichimoku cloud, the price action does not seem to constitute a clear break through the cloud support, especially as the bottom of the cloud has risen over the past few weeks. Additionally, both the 21-day and 55-day EMA seems to have turned sideways. For the next month or so, EUR/USD is likely to trade within a range, roughly between 1.0600 and 1.0855. Either of these levels must be clearly breached before a clearer picture emerges.”
According to Reuters, Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management said that:
“Recent Fed speech has acknowledged the lack of progress on inflation and the desire to maintain the current level of policy rates for longer. That said, it does seem clear the Committee remains biased to cut rates, but any policy easing will be determined by how inflation develops over the next few months. We now expect the Committee to reduce rates 1-2 times this year, with risks skewed to fewer cuts.”
IMPORTANT DISCLAIMER
The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.
