- The US Dollar locks in gains for this week after hotter-than-expected US CPI and PPI figures.
- Traders are pushing the initial Fed rate cut towards September.
- The US Dollar Index trades at a crucial pivotal level that could unlock 104.00.
The US Dollar (USD) rebounded on Friday following a tumultuous Thursday driven by a flurry of US economic data indicating persistent inflation pressures. Markets experienced a classic panic episode, witnessing sell-offs in risk assets like equities and Bitcoin, while bond yields surged, prompting a strengthening of the US Dollar against major currencies. The unexpected rise in the Produce Price Index (PPI) figures unnerved investors, prompting a swift reassessment of expectations for the timing of the Federal Reserve’s interest rate cut, shifting it from June to September.
Friday’s economic agenda featured lighter data releases, with many investors focusing on squaring their positions ahead of the upcoming US Federal Reserve rate decision next week and the Bank of Japan’s potential interest rate hike, a move not seen in decades. Despite the release of Import and Export prices data and preliminary figures from the University of Michigan Consumer Sentiment and Inflation Expectations for March, there were no significant surprises capable of influencing market sentiment for the remainder of the week.
Daily digest market movers: Friday’s data was not important
At 12:30 GMT, the Import and Export price data for February were released. The monthly Import Price Index decreased from 0.8% to 0.3%, while the yearly Import Index saw a decline of 0.8% in January. Conversely, the monthly Export Price Index rose from 0.0% to 0.8%, while the yearly Export Index dropped by 1.8% in January. Simultaneously, the New York Empire State Manufacturing Index for March plummeted from -2.4 to -20.9.
At 13:15 GMT, Industrial Production and Capacity Utilization data for February were released. Production remained relatively stable, increasing from -0.5% to 0.1%, while Capacity Utilization held steady at 78.3%.
The University of Michigan’s latest data, released at 14:00 GMT, showed a slight dip in Consumer Sentiment for March, dropping from 76.9 to 76.5. Inflation expectations for February remained unchanged at 2.9%.
Equities cautiously recovered after the previous day’s market turmoil, with European indices showing mild gains and US futures remaining flat ahead of the US opening.
According to the CME Group’s FedWatch Tool, the probability of a Fed pause in the March 20 meeting stands at 99%, with only a 1% chance of a rate cut. Expectations for a rate cut in June have dipped to around 60%, down from over 70% a week ago.
The benchmark 10-year US Treasury Note is trading at approximately 4.32%, marking the highest level seen this week.
US Dollar Index Technical Analysis: Brief return
On Thursday, the US Dollar Index (DXY) reclaimed its position in the spotlight, emerging as the sole victor amidst market turbulence. While the PPI numbers may have sparked concerns regarding the timing of a rate cut in June, it appears to be merely a recalibration, shifting the likelihood of the initial rate cut from June to September. This narrative mirrors the pattern observed throughout the year, indicating that the probability of the DXY declining to 103.00 is significantly higher than it rallying back up to 104.00.
On the positive side, the 55-day Simple Moving Average (SMA) at 103.42 is encountering resistance. Notably, there lies a formidable double barrier slightly above, with the 100-day SMA hovering near 103.68 and the 200-day SMA near 103.70. The pivotal level on the upside remains at 104.96, contingent upon the catalyst propelling the DXY upwards.
Considering the technical analysis outlined earlier, the recent adjustment to push back the rate cut to September appears to have been factored in. Further downward movement in anticipation of revisiting the June probability seems inevitable. Targets of 103.00 and 102.00 carry significant importance, potentially heralding a new phase of decline. Subsequent to breaching these levels, the path appears clear for a further descent towards 100.61, representing the low point of 2023.
