US Dollar loses ground following JOLTS release, pressured by profit-taking
- The DXY softened near 106.30 on Tuesday.
- The DXY weakened despite a rise in JOLTs figures from October due to profit-taking.
- Fed policy remains data dependent with odds of a December cut rising to nearly 75%.
In Tuesday’s session, the US Dollar Index (DXY) weakened despite a rise in Job Openings & Labor Turnover (JOLTs) figures from October. This weakness may be attributed to profit-taking after recent rallies against major G20 currencies. Economic data from China, including a cut in deposit rates and details of a stimulus package, contributed to the DXY's decline.
This week’s labor market data will guide the Greenback’s dynamics as it will direct the odds of the December cut expectations by the Federal Reserve (Fed).
Daily digest market movers: US Dollar retreats as investors assess JOLTs figures, Kugler statement
- Job Openings in the US climbed to 7.74 million in October. This figure surpassed market estimates of 7.48 million and marked an increase from September's 7.37 million figure.
- October saw little change in hires, remaining at approximately 5.3 million.
- Total separations also held steady at around 5.3 million and resignations (quits) rose to 3.3 million, while layoffs and discharges showed minimal change at 1.6 million.
- On the Fed’s policy front, its stance remains data-dependent, with policymakers leaving options open for the December meeting, but overall economic activity remains resilient and that might push officials to think twice before signalling aggressive easing.
- The Fed’s Adriana Kugler was on the wires, giving her view on the central bank’s stance.
- Kugler stated that the Fed's policy is flexible, well-positioned for uncertainties, and aims to achieve a neutral stance as inflation trends toward 2%.
- Kugler commented that the economic strength stems from a solid labor market, productivity growth and immigration, though risks like supply shocks remain.
- Kugler stressed that disinflation continues, with modest labor cooling balancing progress; trade policy impacts are yet unclear.
DXY technical outlook: US Dollar Index has bright outlook, supported by bullish trend and recent surge above 106.50
The index rose above 106.50 overnight, boosted by positive economic data and a hawkish Fed stance. However, the Index has retreated to 106.14 at the time of writing. The DXY has secured the 20-day SMA, indicating a bullish trend. Buyers are looking to defend this level and retest the 107.00 area.
Technical indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), suggest mixed signals but that the uptrend is likely to continue. The MACD is below its signal line, indicating the presence of bearish momentum, but the RSI remains firm above 50. The key support is found at 106.00-106.50, while resistance is at 107.00.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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