- The US Dollar jumps higher for the second week in a row.
- Traders are challenging the Fed’s dovish stance, casting doubts over its forecasts of three rate cuts for this year.
- The US Dollar Index snaps firmly above 104.00 and breaks substantial support levels.
The US Dollar (USD) is currently enjoying a resurgence in trader confidence. Contrastingly to last year, when markets were challenging the US Federal Reserve (Fed) by pricing in more rate cuts than indicated by the dot plot, investors are now displaying defiance in the opposite direction. They are bolstering their positions in the Greenback under the belief that the Fed will likely not execute the three interest rate cuts projected on Wednesday, but rather, at most, two. This shift is driven by economic data signaling that the US economy continues to grow at a robust pace.
In terms of economic data releases, there are no significant announcements expected for this Friday. However, as the week concludes, markets will be attentive to insights shared by three scheduled US Federal Reserve speakers. Despite this, remarks from US Fed Chairman Jerome Powell earlier in the week failed to elicit any noteworthy impact on the market.
Daily digest market movers: King Dollar is back
During a United Nations meeting, China and Russia are voicing opposition to a ceasefire proposal presented by the US. Concerns are arising that US sanctions could impact China’s tech market, leading to a significant sell-off in the sector and a resultant weakening of the Yuan against most G7 currencies. This has fueled perceptions among investors and hedge funds that China’s grasp on its economic recovery may be slipping.
As the week draws to a close, three Federal Reserve speakers are scheduled to address markets:
- Fed Chairman Jerome Powell has already delivered remarks without any significant market-moving insights.
- Fed’s Vice Chair for Supervision Michael Barr is set to speak around 16:00 GMT.
- Atlanta Fed President Raphael Bostic will conclude the US calendar officially with remarks at 20:00 GMT.
Equity markets are exhibiting a mixed performance:
- Chinese indexes, notably the Shenzhen index, have plunged over 1%, while the Hang Seng is down by over 2%.
- European equities have adopted a negative tone, albeit with a lesser decline of half a percent.
- US equities are also edging into negative territory, albeit mildly.
According to the CME Group’s FedWatch Tool, expectations for the Fed’s May 1 meeting indicate a 91.0% probability of maintaining the rate unchanged, with only a 9% chance of a rate cut.
Meanwhile, the benchmark 10-year US Treasury Note, trading around 4.22%, is experiencing an acceleration in its selloff.
US Dollar Index Technical Analysis: Rate differential driver returns
The US Dollar Index (DXY) appears bemused by the market’s abrupt about-face following the recent Fed meeting. In December, expectations leaned heavily towards multiple and early interest rate cuts, but these sentiments have since been tempered considerably. The disparity with the Fed’s stance is stark: while Wednesday’s dot plots indicated that Fed officials still anticipate three rate cuts this year, markets are now pricing in only two cuts, and those much later in the year.
The DXY is steadily approaching the highs seen in February, following a fresh peak for March recorded on Friday morning. On the upside, the immediate target is 104.96. Surpassing this level would bring into focus the February peak at 104.97, followed by the 105.00 region, with 105.12 serving as the primary resistance.
Conversely, the 200-day Simple Moving Average (SMA) at 103.71, the 100-day SMA at 103.52, and the 55-day SMA at 103.58 are poised to offer support. The 103.00 mark appears unlikely to be tested for now, as the downturn from the Fed meeting reversed course well before reaching this level.
